When you finance an expensive property, you need a jumbo mortgage.
In 2023, a jumbo mortgage is any home loan that exceeds $726,200 in the US.
That’s the limit for “conforming” loans guaranteed by Fannie Mae and Freddie Mac. Although, counties in high-cost areas have limits up to $1,089,300 in 2023. In other words, jumbo loans are “non-conforming.”
Non-conforming mortgage loans have different rules than conforming loans. In general, the qualifying rules are stricter from banks and lenders who offer bigger loans to clients.
• Jumbo loans usually have higher interest rates than conforming (conventional) mortgages. For that reason hybrid fixed adjustable-rate loans with terms of 7-10 years are popular choices for borrowers seeking loan-amounts over $1.5 million instead of 30-year fixed rates.
• Many borrowers can take advantage of getting a conforming first mortgage and a piggyback” mortgage when the home value is $1,127,000 or less. Borrowers tend to choose this option because the blended rate of the first and second mortgage is a lot less than getting one jumbo mortgage.
Compare jumbo mortgage rates between lenders
Unlike conforming mortgage rates, which usually vary by .25 to .50 percent between competing lenders, jumbo mortgage rates can range largely from one lender to the next. We’ve seen current ranges of 3.5 to 5.5%.
Jumbo lenders can target different market segments such as alternative income documentation, non-QM, or borrowers with large down payments and credit scores over 740. These elements affect the interest rates charged.
In contrast to smaller home loan amounts, a half percent difference in the interest rate on a $800,000 loan amount can add up over time.
• $800,000 at 4.375% = $3,994
• $800,000 at 4.875% = $4,234
Once five years has passed, saving $240 per month means you kept $14,400 in your pocket. If you have dependents that savings can be better spent elsewhere such as tuition, a use car, pay down debts, or invest in liquid assets.
Periods of Low Conforming Loan Rates
When conforming rates are significantly lower than jumbo rates, consider a piggyback mortgage. This combination of a conforming first mortgage and a small second mortgage may save you money.
You take a second mortgage to take care of the part of the loan that is above your area’s conforming limit.
For example, let’s say you need a $950,000 loan in San Diego and the county’s 2022 conforming limit is $879,750. You apply to get a $879,750 first mortgage and a $72,250 second mortgage.
| Loan Type | First Mortgage | Second Mortgage | Total Payment |
|---|---|---|---|
| Piggyback | 879,750 @ 3.25% | $70,250 @ 6.25% | $4,342/month |
| Jumbo | $950,000 @ 4.375% | n/a | $4,743/month |
In this situation, the home buyer would be smart to go with the 1st and 2nd piggyback loan due to the $401-per-month savings.
Wait, there’s more.
There’s 5-percent down jumbo loan products available for eligible borrowers up to $1 million and $1.5 million. The latter program has stricter guidelines such as the borrower will need to have low debt ratios.
What are today’s jumbo mortgage rates?
Today’s jumbo mortgage rates are still relatively low. In recent months, the average jumbo mortgage rate has increased more than conforming rates.