4.25% 30 Year Fixed Rate
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Program Rate APR
30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
5/1 ARM 3.125 % 0.7 to 1
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Jumbo Or Traditional?

Every borrower is familiar with the dilemma of interest rate forecasting. Rates can either go up or down. So, the borrower faces two options: Will his loan become more expensive or get cheaper in the future? This question depends on a group of individuals in Washington, D.C. The Federal Open Market Committee (FOMC) meets eight times a year and decides interest rate policy for the whole country. If the Committee raises interest rates, loans become more expensive. If they lower rates, borrowing costs go down. The FOMC plays a key role, influencing the direction of interest rates across all economic sectors.

A borrower deciding between two types of loans, a jumbo loan or a traditional loan, must be aware of two things. Firstly, jumbo loan rates are higher than traditional loan rates, like the rates for a 30-year or a 15-year loan. The market has greater freedom to decide what interest rates these loans will receive, in addition to the heavy hand of the FOMC. Fannie Mae and Freddie Mac, the two mortgage-buying giants owned by the government, set limits on the sizes of the loans they buy. Jumbo loans are so named because they exceed the “conforming limit” set by these two entities.

Traditional loans are cheaper in terms of borrowing costs than jumbo loans both because they fall within the conforming limit, and the bank, therefore, faces less risk, but the loan amount is also less. Jumbo loan rates are higher both because of their larger size and because Fannie Mae and Freddie Mac will not buy them from originating banks. Ideally, jumbo loans would be out of reach for all but the people who were rich enough to afford them. Jumbo loans are over $410,000 in size, a hefty amount for any borrower to handle.

Fortunately, jumbo and traditional borrowers have the FOMC on their side. The Federal Reserve committed itself to maintaining a Federal Funds Target Rate of effectively zero percent for another two years on August 9, 2011. Zero interest rate policy (ZIRP) will remain in place until mid-2013. Interest rates plunged as a result, in combination with the European crisis and U.S. downgrade, leading to the lowest mortgage rates in decades. Borrowers face low borrowing costs for at least two more years, giving homeowners and home purchasers more of an incentive to make a positive decision now when the lowest mortgage rates in years present an opportunity.