QandAs: Loans

Why are Jumbo Mortgage Rates higher than Traditional Mortgages?

Answer:
If you’re buying a home that costs more than

$417,000, a jumbo mortgage loan is required. Unlike traditional mortgage loans, which place a ceiling or cap on home loan amounts, jumbo mortgages allow a home buyer to purchase an expensive home.

In some housing markets across the nation, jumbo mortgages are practically the norm due to increased home values. The two secondary mortgage markets – Fannie Mae and Freddie Mac – establish the dollar amount that characterizes a jumbo home loan. This dollar amount is subject to change, but often remains the same for several years.

While jumbo mortgages make it possible for home buyers to purchase an expensive home, this mortgage type involves a higher interest rate. Freddie Mac and Fannie Mae purchase a large bulk of mortgage loans. In turn, they resell these loans to private investors or lenders.

Traditional home loans are easier to resell. On the other hand, jumbo loans are more difficult because there are fewer buyers. As a result, residential mortgage lenders have to charge higher interest rates on jumbo loans. This way, the lender can make a profit. Unfortunately, a higher rate on the mortgage loan equals a higher monthly payment for the home buyer.


	more Q&A sessions like this
	What are the different types of Mortgages? What is Jumbo Loan? What is a Conforming Mortgage? Who is Freddie Mac? Who is Fannie Mae and what do they do? What is a Non-Conforming Mortgage Loan? What is a 1003 Form? What is a Super Jumbo Mortgage? Where can I find a local Mortgage Loan Specialist? What is a Sub Prime Mortgage? What is Home Equity Fraud?