Mortgage Refinance
Get the Best Rate on Your Jumbo Mortgage Refinance
If you are in the market for a luxury home and need mortgage financing, a jumbo loan may be your best option. Jumbo loans exceed the lending limits set by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency.
For most of the country in 2019, the maximum conforming loan amount is $484,350, although there are higher limits up to $726,525 in some U.S. counties. These loan limits, also known as conforming loan limits, are adjusted yearly to reflect changes in the average prices of homes.
Jumbo loans may be referred to as nonconforming loans because they don’t fall under the guidelines set by Fannie Mae and Freddie Mac for loan approval. Qualifying requirements and interest rates vary widely by lender, making it important to understand how they work before you start to compare jumbo rate offers.
Jumbo rates had been significantly higher than conforming rates, especially during the housing crisis from 2007 to 2010. As the housing market improved, jumbo rates dropped, and — in some cases — may be slightly lower than conforming interest rates.
Part of the reason for lower rates on jumbo loans is stricter underwriting standards. Jumbo lenders generally require a lower debt-to-income (DTI) ratio of 45% and at least six to 18 months of mortgage payments in the bank, also known as payment reserves. According to a 2018 CoreLogic report, the average jumbo borrower’s credit score is 18 points higher than that of a conforming borrower.
Jumbo lenders also require extensive documentation of all income and assets, and may require more than one property appraisal. The extra verifications and stricter underwriting requirements make it less likely a jumbo borrower will default — and the reward for less risky borrowers is lower interest rates.
Type of income documentation
Jumbo borrowers very often have complex income tax returns, taking advantage of sophisticated business structures to reduce tax liability. It may be difficult to determine qualifying income, or the lender may require extensive documentation and explanations from accounting professionals.
Jumbo lenders often offer alternative options, such as providing business bank statements for 24 months rather than tax returns. This extra flexibility usually comes with a markup to the interest rate.
Amount of down payment
How much you put down will have an impact on your interest rate with a jumbo loan. While some lenders may allow you to put down as little as 10%, others may require 20% or even 25% if you want the lowest rate they offer.
Asset-only documentation
Some borrowers may not want to provide bank statements or tax returns for privacy or convenience reasons. Jumbo lenders can also offer asset-only options for high net-worth borrowers. This will increase the down payment requirement and increase the rate you pay on your mortgage.
Interest-only payment option
You may prefer an interest-only option if you receive large lump-sum income payments and want to have the lowest payment possible. If you make large payments toward the principal, your payment will drop much faster than if you are on a fixed-rate payment schedule. This can be a good option if you are expecting a large financial windfall — your interest-only payment is based on the balance, so your payment will drop significantly if you pay down a big chunk of your loan balance.
Property types
One of the benefits of jumbo loans versus conforming loans is the ability to finance a wider range of property types. Whether it’s a log home near a ski lodge or a high-rise condominium in a big city, jumbo loans have less restrictions on property type.
Like all the other factors listed here, that flexibility comes at a cost, usually in the form of a higher interest rate. That flexibility may come with an extra layer of costs when it’s time to order an appraisal — your lender may require a review appraisal, especially if your loan amount is over $1 million. The review is meant to double-check the work of the first appraisal. Sometimes the appraisers don’t agree on the value, or one may require additional information the other didn’t.
Under the federal Tax Cuts and Jobs Act (TCJA), the mortgage interest tax deduction only applies to interest paid on $750,000 worth of mortgage debt. That’s a decrease of $250,000 from the limits prior to December 2017, so you may want to discuss tax strategies with an accounting professions if you plan to borrow more than $750,000.
Because jumbo loans are a specialized loan type, not all lenders will offer competitive rates. Some may prefer to specialize in conforming loans, or may not have the net worth or capital requirements that banks have to offer you the lowest rates.
Getting the lowest rate on a jumbo loan can save you in the long run. The examples below show how much extra interest is paid on jumbo loans versus conforming loans.
| 300K LOAN | RATE | PAYMENT | TOTAL INTEREST |
|---|---|---|---|
| Loan A | 3.875% | $1,410.71 | $207,856.05 |
| Loan B | 4.25% | $1,475.82 | $231,295.08 |
| Difference | .375% | $65.11 | $23,439.03 |
| 600K LOAN | RATE | PAYMENT | TOTAL INTEREST |
|---|---|---|---|
| Loan A | 3.5% | $2,694.27 | $369,936.53 |
| Loan B | 3.875% | $2,821.42 | $415,712.10 |
| Difference | .375% | $127.15 | $45,775.57 |
At the top of the page, you can shop for jumbo rates. Based on your creditworthiness, you could be matched with up to five different loan offers from lenders.
If you have a high net worth of investments and deposits with your local bank, it’s definitely worth discussing what terms they’d be willing to offer for your jumbo loan needs.
Because the difference between the cheapest and most expensive loan is greater for jumbo products, and because the larger loan amount increases the difference in payment, there is a greater opportunity to save by comparison shopping for a jumbo mortgage. Obtaining multiple quotes from competing jumbo mortgage lenders is an easy process with tools like LendingTree’s LoanExplorer, so there is no reason for consumers to overpay when they choose their jumbo financing.