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Jumbo Loan – What to expect

For people looking to refinance their mortgage now is one of the best times to ever do so. Interest rates on mortgages are extremely low, which could help the majority of existing borrowers save thousands of dollars a year in excess interest charges.

When looking for a new mortgage refinance, it may be tempting to choose a loan with either an interest only payment or with a variable interest rate. While these rates have extremely low rates compared to fixed rate mortgages, mortgage rates fixed provide far more financial security. Adjustable rate mortgages tend to have a fixed rate period for 3 to 5 years, but they are subject to change. If market interest rates fluctuate up dramatically after the fixed rate period, you could end up being stuck with an interest rate and payment that is unaffordable. On the other hand, mortgage rates fixed for the entire 30-year term will provide you with a consistent payment that will remain easy to pay.

While mortgage rates are quite low, those with larger loan balances may have to end up paying a premium on the interest rates. Jumbo mortgages, which are defined as those with a balance of over $729,500, are not compliant with FHA standards and therefore do not have the same financing options. Jumbo loan rates tend to be at least 0.50% higher than a traditional loan rate. While jumbo loan rates are always higher, a borrower could get a lower rate by either paying their balance down to less than the jumbo loan level or by splitting the loan into a first and second mortgage.

While mortgage rates on almost all loan products are a lot lower than they have been historically, most banks have drastically tightened their lending requirements and expect much more out of their borrowers to qualify for most loans. One increased requirement are tighter requirements for credit scores. A few years ago a borrower could get a loan with a credit score of 650 or more. Today almost all banks want their borrowers to have a score of 700 or more and those looking for the best rates will need a score of 740 or more.

Borrowers looking for the best rates on mortgages will also need to have a sizable equity contribution in their home. Most banks require at least 20% equity in order to qualify for the lowest rates on their refinance.