Jumbo Mortgages

What is a Jumbo Mortgage?

Jumbo mortgages work in much the same way as conventional home loans do. They are offered in both fixed-rate and adjustable-rate varieties, which the same advantages and drawbacks which are typically associated with each.

The key difference, and the source of the name Jumbo, is the fact that loan amounts exceed what is typically loaned out under conventional loans. This comes into play when purchasing luxury or high-priced properties.

Jumbo Fixed Rate Mortgages

The benefit of a jumbo fixed-rate mortgage is that your interest rate and payments don’t change during the life of the loan. You will not experience unexpected changes in your interest rate. And in the event interest rates decrease a few years after your purchase, you can likely refinance your mortgage in order to take advantage of this. Fixed rate mortgages are available in term lengths ranging from 10-30 years

Fixed Rate Advantages:

Your interest rate and monthly payments won’t increase, regardless of the market

You may be able to refinance to take advantage of decreases in market rates

Fixed Rate Disadvantages:

Your initial rate may be higher than what you’d get with an adjustable rate mortgage, resulting in higher monthly payments

Your interest rate doesn’t automatically decrease just because market rates have, other factors apply

Jumbo Adjustable Rate Mortgages (ARM)

A jumbo adjustable rate mortgage is a great way to save money on a loan, particularly if you don’t anticipate living in one place for more than a few years. ARMs are available in a number of configurations that determine how and when the interest rate may change. For example, a 3/1 ARM will have a fixed rate for the first three years, and then will be adjusted once yearly every subsequent year. Rates may increase or decrease during adjustment periods, which will impact your monthly payments. Caps can be set to protect you against rate increases.

Adjustable Rate Advantages:

• Your initial rate may be lower than what you’d get with a fixed rate mortgage, resulting in lower monthly payments
• You may be able to refinance to take advantage of decreases in market rates

Adjustable Rate Disadvantages:

• Your interest rate doesn’t automatically decrease just because market rates have, other factors apply
• Your interest rate and monthly payments may increase after the initial fixed term, depending on the market
• You can protect yourself from rate increases with caps based on your specific situation

Jumbo Loan Eligibility

In order to qualify for a jumbo mortgage, you must have sufficient income and a strong enough credit history to demonstrate that you will be able to repay your loan.