Can I refinance a jumbo mortgage loan?

Posted by  on May 11, 2011

If you own high-priced real estate, chances are you took out a jumbo mortgage loan to do so. Having a jumbo mortgage means you pay higher interest rates than with a regular home loan. If you'd like to lower your housing costs, it may make sense to check out refinance rates for jumbo mortgages.

Jumbo mortgage limits

Jumbo mortgages are loans that are higher than the "conforming" loan limit for loans meeting underwriting guidelines of Fannie Mae and Freddie Mac. Conforming loan limits vary depending upon your housing market, but range from $417,000 to $729,750. However, the conforming loan limit is expected to change as of Oct. 1, 2011 to a maximum of $625,500 for a one-unit home.

Jumbo mortgages carry more risk for mortgage lenders. Defaulting on a jumbo mortgage means the lender loses a lot of money. You'll have to undergo more scrutiny to qualify for a non-conforming loan. If you have the income and assets to get approved for a jumbo mortgage, you'll pay a higher interest rate than if you had a conforming loan. But according to a recent HSH article:

At least one sign of improvement in the market comes in the form of the differential between fully government-supported conforming rates and true, private market jumbo (non-conforming) rates. Pre-financial crisis, about a 20 basis point differential in rates was typical; in the worst of the market mess, that expanded by nine times normal to 180bp at its widest, but has gently retreated over time to a present-day gap of about 60 basis points. Additional narrowing seems possible but unlikely in present market conditions, but an expected increase in competition among jumbo lenders may trim it somewhat over time.

Benefits of refinancing

Being able to refinance a jumbo mortgage could help cut your housing costs. If you purchased your home at a much higher interest rate than current jumbo mortgage rates, compare mortgage quotes from several lenders. Not all mortgage lenders offer the same deals so it pays to do your research. There are fixed-rate and adjustable-rate jumbo mortgages such as 5/1 ARMs that offer a low introductory rate for five years. After that the interest rate periodically adjusts.

Can you qualify for a refinance?

While refinancing could save you big bucks, it may be tough to qualify depending upon your housing market. If you've lost a lot of home equity or are completely underwater, no mortgage lender is going to approve a loan. Many mortgage lenders want you to have at least 20 percent equity in a home before underwriting a jumbo mortgage, but some allow highly-qualified applicants to refinance a 90% mortgage.


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