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Jumbo Mortgages – Historic Lows

With the housing slump of the recent recession making many houses more affordable for new buyers and investors, many people are looking into jumbo mortgages. The interest rates for these jumbo mortgages hit historic lows during the recession, and new legislation was put into effect by Presidents George W. and Obama to facilitate the purchase of new real estate.

In 2008, then President George W. Bush signed the Housing and Economic Recovery Act of 2008, which effectively raised the domestic conforming limit to $729,750. These limits were extended into 2010, but serve mostly as theoretical limit for jumbo mortgage limits. Lenders are under no obligation to accept these new limits, and therefore the actual jumbo mortgage limit 2010 was essentially kept at $417,000. Any mortgage above that limit will still draw higher interest rates from mortgage lenders.

So even with the new legislation, new buyers needed to find a way to take advantage of low interest rates, as banks had no interest in actually sharing the rates that were being advertised with the general public. As the real jumbo mortgage limit 2010 was actually still $417,000 despite the new legislation and extension, many people turned to variable mortgage rates to help keep their interest rates low.

Variable mortgage rates attract lower interest rates than do fixed rate mortgages simply because they allow more room for maneuverability on the part of the mortgage lender. If interest rates go up, and the buyer is still under the loan, the bank can essentially make up for the money lost at the lower interest rate by raising the interest rate along with the prevailing market. They cannot do this with fixed rates. Many financial gurus will mistakenly have you believe then, that fixed rates are the safer and more financially stable route to take, but if you do not consider a variable rate, especially on the more expensive jumbo mortgage loans, you are essentially leaving money on the table for the lender to take.

The secret to a successful variable rate mortgage experience is to watch the terms of what you sign, use the prevailing fixed rates in the current market as a benchmark, and pay down the loan more quickly than just the bare minimum each month. If an investor can successfully work all of these steps, then he or she can actually save quite a bit of money by taking a variable loan.