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A Jumbo Mortgage is a mortgage with a loan amount above conventional
loan limits. Jumbo Mortgages apply when agency (FNMA and FHLMC) limits don't
cover the full loan amount. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large
agencies that purchase the bulk of residential mortgages in the U.S. They set a
limit on the maximum dollar value of any mortgage which they will purchase from
an individual lender. Currently, this limit is $417,000. This leaves a portion
of the market to look elsewhere for placement. Other large investors, such as
insurance companies and banks, step in to fill the need with maximum mortgage
amounts going to the $1 million or $2 million range. The average interest rates
are typically greater than normal for conforming mortgages, and vary depending
on property types and mortgage amount.
* Fixed- Term is for 15 or 30 years although it is common to set another term.
Interest rate will not change for the life of the mortgage.
* ARMs- Adjustable Rate Mortgages are loans with a fixed rate for a time period
usually 1, 3, 5, 7, or 10 years followed by an annual interest rate adjustment.
They are usually expressed as 1/1, 3/1, 5/1, etc. Following the initial fixed
period, the new rate is determined by adding a margin to an index. For example,
a common index is the 1 year Treasury Weekly Index. If your ARM has a margin of
2.750 (margins can vary from 2.500 to 3.000 depending on lender and product) and
the index was at 5.33 your new rate will be 8.080%. ARMS, like balloons, can be
a viable option if you select a term appropriate for your plans. Also, I have
several clients who have adopted a strategy where they determined that the low
rate associated with a 1 year ARM saves them more money than the cost of an
annual refinance. It may be worth looking at to see if it works for you.
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