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.