# Jumbo Mortgages Don't Mean Jumbo Rates

It is no secret that anyone getting a mortgage above the conforming limit of \$417,000 is in for some sticker shock as the rates on non-conforming mortgage loans have gone through the roof.  For instance, a typical 30 year fixed rate mortgage is about 6.375% (no points) right now versus about 7.5% (no points) for a jumbo mortgage.  Huge difference.

Typically, the maximum purchase price to avoid a jumbo mortgage is \$521,250.  If you put 20% down or go with a piggyback mortgage, your first mortgage amount would be \$417,000.  \$521,250 x 80% = \$417,000.

Suppose you wanted to buy a place for \$650,000 and put 20% down.  This means most loan officers would give you a mortgage of \$520,000.  This loan amount is clearly in Jumbo territory and subject to the much higher non-conforming mortgage rates.  At a rate of about 7.5% this equates to a monthly payment of \$3635.   However, is there a better way to structure the deal?  Of course.

Creative financing means running the numbers and thinking out of the box.

What loan officers should recommend is holding your first mortgage to \$417,000 at 6.375% and putting the balance of \$103,000 on a fixed rate second mortgage or home equity line of credit.  This gives you the total needed mortgage of \$520,000 (\$417,000 + \$103,000).  I have 30 year fixed rate seconds in this scenario at 7.115% (no points).  The total combined payment between the two loans is \$3294.  By structuring the loan this way, you save approximately \$341 per month or \$4092 per year!   The weighted average or "blended rate" of the two loans is just 6.522% or slightly higher than the conforming mortgage rates.

Take a closer look:

\$520,000 @ 7.5% = \$3635

vs

\$417,000 @ 6.375 = \$2601

+

\$103,000@ 7.115 = \$693

Total Payment: \$3294

This is the difference between dealing with established mortgage professionals who know how to properly structure mortgage loans versus call center order takers.  In addition, this is also why it is important that you work with a mortgage broker who has access to multiple lenders so you can have more choices that will save you money.

6 Comments on Jumbo Mortgages Don't Mean Jumbo Rates

SEP
25
2007
 Hey Russ,Great points and it shows the value of using someone experienced and creative in this market. 12:18pm • #1
Good article, finally a loan officer that thinks beyond the points he will make
12:27pm • #2
 Thanks.  What is great is that this approach works extremely well and for the most part is only limited by the size of the second mortgage.  There are lenders who can go up to \$300k for second mortgages, so you in theory you could get a max loan amount of \$717,000 between the two mortgages or purchase almost a \$1 million dollar home with "conforming like" mortgage rates depending on your down payment.All it takes is a loan officer who is willing to run the numbers and get a little creative. 1:29pm • #3
 Russ, a good loan officer has always made a difference...but I think that in times like this, the gap widens exponentially! 2:52pm • #4
SEP
26
2007
 Great blog.  I'm sharing with my jumbo buyers today.  Thanks 6:34am • #5
OCT
06
2007

I'm glad you posted blog Russ. I really enjoy reading them. You always touch on some great points and this is just one of them. I can guarantee that a call center loan officer would not know how to make this happen. I take 1st mortgages to one lender and then I'll take their 2nd mortgage to another because I know how to structure the deal and manage two lenders to get the deal done on time. But because we think outside of the box we get more business!

I asked a client who referred them to me they told me and said "She said if anyone could get it done, you could" I was flattered of course but I think she is right. which I'm actually writing a blog somewhat about...so please check that out when it is up later today!

10:34am • #6

What does the graphic say?
Leave a response…
Comment: Name: Email: (optional) Spam Prevention:

Perl Mortgage

Office Phone: (312) 651-5355

Cell Phone: (847) 722-5355

Email Me