Mortgage Refinancing Rates Higher on Jumbo Loans
Why is it that jumbo loans have high interest rates? How would this affect applying for home mortgage refinancing? At this time when a lot of houses are getting low prices and more and more statistics are showing signs of economic recovery, how do you know what to do with your loan?
Specifically, how does one deal with jumbo loans? First, let us first define a jumbo loan. This is a type of mortgage loan that is above the loan limits that were set by Freddie Mac and Fannie Mae. For a one-unit property, the limit is $417,000. However, it can reach as high as $729,000 in some areas where the costs of houses are really high. In some areas like California, jumbo loans are but normal.
Jumbo loans have interest rates that as higher by around 2 percent than conventional loans. Before the housing market collapsed recently, the difference was just around .25 percent. Now, home mortgage rates for 30-year fixed loans are at 6.58 percent.
When the housing market crashed in 2007, a lot of investors were cautious in investing in securities that are backed by mortgages. Jumbo loans are reliant in private securities. After the collapse, a lot of financial institutions were not able to find buyers for jumbo loans. Home mortgage resale provided the needed funds for new loans. While conventional loans have regular demand through Freddie Mac and Fannie Mae, jumbo loans do not. The investment for such loans actually comes from other sources such as hedge and mutual funds. When these financial institutions crashed, jumbo loans collapsed as well.
As the housing market continued to show weakness and affect the economy as a whole, jumbo home mortgage loans became a lot more difficult to get. They were even seen as high risk home mortgage loans before the market crashed. Jumbo home mortgage loans saw their rates rising as the stock market crashed, investors became more careful, unemployment rate went higher and foreclosures increased as well. Good thing the recent decrease in conventional home mortgage rates has caused improvement in jumbo home mortgage loans.
The difference in the interest rates of conventional and jumbo home mortgage loans has removed the benefit of home mortgage refinancing for a lot of homeowner. It has also affected high dollar home sales.
