Jumbo rates drop despite a return of the luxury market – Factors affecting the rateSubmitted by AlexBrown on Thu, 12/20/2012 - 06:16
As the economic crisis affects the borrowers at all income levels, jumbo mortgages that lend loan amounts above $417,000 are defaulting at a rapid pace. In fact, Bloomberg has recently reported that the jumbo home mortgage loans are usually associated with the higher income borrowers and might become the next black hole that will paralyze and cripple the housing the banking industry. Reports suggest that the jumbo mortgage homeowners are becoming delinquent on their mortgage payments at the fastest pace since the last 15 years. This can be taken as an implication that the US financial crisis that started with affecting the poorest Americans has already reached the wealthiest. Struggling jumbo mortgage homeowners are desperately looking for ways to refinance their loans and retain their homeownership rights.
Some statistics on jumbo mortgage defaults that might shock you
Around 3% of the prime borrowers who took out jumbo mortgage loans in 2011 are at least behind by 60 days on their mortgage loans, according to the studies of LPS Applied Analytics, a mortgage data service based in Florida. Since LPS Applied Analytics has started tracking such activities, the borrowers are defaulting at the fastest pace since early 1992. The spur in the jumbo loan delinquencies signals that the borrowers with the best credit rating and with the most money are being hit by the effects of the US recession. This also means that the loans will become even more difficult to attain and dearer to repay.
A drop in the jumbo mortgage rates despite a rebound in the luxury market
Yes, according to reports by Fannie Mae and Freddie Mac, the jumbo mortgage loan rates are dropping and almost after 6-7 years, the lenders are returning to this arena in a full-fledged manner. The difference in the interest rates between the prime conforming mortgage loans and the jumbo loans has been between 20 basis points for several years but according to the data of Bloomberg, this difference has increased to 182 basis points in the month of February, 2012. An interesting point to note here is that the size of the home loan is not the only factor that determines the interest rates. The biggest reason behind such a huge difference in the interest rate of jumbo loan and traditional loans is the lack of government guarantee. The jumbo mortgage loans are available at 7% and without government-backed guarantee, even the conforming mortgage loans would also be within this aforementioned range.
Factors that shape up your jumbo mortgage refinance rate
Mortgage refinancing involves a same process as taking out the first mortgage loan and the rates that you’ll be charged will be affected by various different factors. Have a look at some factors that cause the jumbo mortgage refinance rates to vary.
Credit score: Your credit score is one of the most crucial factors that determine your jumbo mortgage refinance rate. You require stellar credit rating in order to secure the best competitive rate on your jumbo loan. When it comes to traditional mortgage loans, a poor credit borrower might get a loan with a higher interest rate but with jumbo loans, your loan won’t be confirmed at all. So, go for credit repair before applying for a jumbo mortgage loan refinance.
The Fed’s decision: The Federal Reserve plays a pivotal role in determining the interest rates that you pay on your mortgage loan. They set the interest rate that they charge the banks and so if they decide to charge low rates, you too will find lower rates in the market. Usually the Federal Reserve increases the rate when the economy is in a good state.
The term of the loan: The term of the loan is directly proportional to the interest rates that you pay on the loan. The longer is the term of the loan, the higher will be the interest rates. So, this is the reason behind the high rates on the jumbo loans as compared to that of the traditional loans.
The jumbo mortgages are rebounding and the borrowers have lot of choices to choose from. In high cost areas like California, Bethesda, Alexandria, Fairfax and Virginia, the Freddie Mac and Fannie Mae allows loan sizes up to $625,000 with a minimum down payment of 10% of the loan.
Author bio- Stephenie Miller is a prolific writer with specialization on various aspects of finance. Her articles on debt, mortgage industry,refinance, real estate and personal finance are valuable guidelines to the readers.