| By :
Paul Wise
To understand the reason behind the difference in mortgage interest rates between a jumbo mortgage and a standard mortgage we must first get into what a jumbo mortgage is. In essence a jumbo mortgage is a loan which is above the limits at which the two largest mortgage purchasers will buy the loan. Under normal economic conditions these two purchasers, Fannie Mae and Freddie Mac, have an upwards limit of $400,000. Because jumbo mortgages are taken on properties of a much higher value than regular properties if the borrower fails to pay the loan and the home goes into foreclosure it is much harder for the bank to sell the luxury property for enough money to recover the costs. Because of this there are usually restrictions on the loan as well as rules such as the need to purchase a private mortgage insurance to guarantee the loan to ensure the lender gets their money. Also because of the added risk jumbo mortgage rates happen to be slightly higher than regular mortgages to give the lender incentive to lend to a borrower of a jumbo mortgage as opposed to a regular mortgage. Because of the financial situation the world has been going through in 2007, 2008 & 2009 many people have been taking their money out of high risk financial vehicles such as the stock and bond market and putting their hard earned cash straight into the bank. Now some banks have an excess amount of cash and are lowering their jumbo mortgage rates to compete for customers. It is still not easy to get yourself a jumbo mortgage but it is much cheaper should you be lucky enough to qualify. On top of this Fannie Mae and Freddie Mac have raised the limit at which they will purchase mortgages by huge percentages depending on the state, so where once you were paying for a jumbo mortgage you could now be paying for a regular mortgage! This will save you in mortgage interest rates and fees across the board so do your research and make sure you still need a jumbo mortgage. Now seems like the perfect time to invest in your luxury home should you be able to afford it. Interest rates are down for the rest of 2009, Home prices have plunged huge percentages including luxury homes, and now banks are competing for your business. Make sure to read the fine print, Ask advice from a professional and have fun house hunting!
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