Bigger Loans Now Cheaper than Smaller Loans?

by Dan Lesniak

Historic Rates:  Jumbo Loan Rates Are Cheaper than Conventional

The rates on 30 year fixed jumbo loans fell below 30 year conventional loans for the first time ever, according to some lending experts. The WSJ reported that the average rate on 30 year fixed  jumbo loans was 4.71% which was two basis points below the rate for conventional loans. Conventional loans are loans backed by Fannie Mae and Freddie Mac. These loans have a limit of $417,000 in most of the country although in real estate markets surrounding the Washington DC area, including Arlington, these limits can be as high as $625,000.

In the past there was a significant increase in the rate once a borrower got into the jumbo loan territory, sometimes as much as half a percent to one percent higher. Since jumbo loans are typically held by banks and not resold, they do not move as quickly as loans that are more tied to the treasury markets. The recent increases in the treasury yields have caused this gap to narrow in recent months and now even invert with respect to the traditional differences between jumbo and conventional rates, with fixed rate jumbo loans being cheaper than conventional. The delta is even bigger for adjustable rate mortgages (ARMs) with jumbo loans being sometimes as much as 75 basis points lower than conventional ARMs.

What this Means for Home Buyers

In higher priced real estate markets, such as Arlington, Falls Church, Mclean and Washington D.C., home buyers will have more purchasing power. “Many of the jumbo rate products now are helping buyers increase their price range, which is giving them more options in our low inventory market,” according to Thad Wise, a local loan officer with First Savings.

In many of the DC markets buyers have to get loans in the jumbo range in order the homes that fit their desired location, age and features. The continued historic low borrowing rates, especially in the high dollar ranges are giving buyers what may be a once in a life time chance to purchase their dream home.

For more information about how to take advantage of these all time low rates, contact Dan at 703-638-4393 or email [email protected]


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