You have found the home of your dreams, but there is a problem. Your loan amount exceeds the standard conforming loan limit of $417,000. The good news is there are still options available for you. Jumbo mortgage loans are loans that are between the amount of $417,000 and $3,000,000. While the requirements for a jumbo loan are more rigid than those for conforming loans, it is possible to get a jumbo loan. There are two different types of jumbo loans to be aware of before settling on your new mortgage.
A fixed-rate jumbo loan is similar to a conforming fixed-rate loan that is offered by Fannie Mae or Freddie Mac. There are several different amortization terms for fixed-rate loans including 15-year, 20-year and 30-year loans. The advantage to fixed-rate loans is that the rate remains the same throughout the term of your mortgage. This allows homeowners to plan for the future, always knowing what their monthly payment will be. The shorter the term of the loan, the quicker the home will be paid off.
Adjustable-rate jumbo mortgage loans do just as the name suggests. After a fixed period of time, the interest rate can fluctuate. It is usually an increase but in rare cases a decrease might occur. The typical ARM mortgages offer fixed terms between three and 10 years. After that period of time, depending on your loan, your interest rate can change annually. The rate that you will be charged is determined by the rates in the market at the time.
There are pros and cons to both types of loans. Weighing each side for yourself will help you decide which jumbo mortgage loans are right for you. Fixed-rate jumbo loans typically offer higher rates than the ARM loans initially. This can be a disadvantage for homeowners. On the flip side, however, a fixed-rate loan does not have any uncertainty; you will always know what your payment will be.
ARM loans offer lower rates than fixed-rate loans initially. The disadvantage to an ARM loan is that there is no way to predict what the future rates will be. They could be substantially higher than the current rate of the fixed-rate loan, driving your payment up substantially. If your income is fixed or fluctuates due to commission, an ARM loan might not be the best choice for you.