Refinancing a mortgage is usually uncomplicated, but jumbo mortgage refinancing falls into a different category.
Jumbo Mortgages Explained
With regards to the amount of money financed on a home purchase or refinance, there are two different types of mortgage loans:
- Conventional Mortgage Loans: These are also sometimes referred to as conforming mortgages. For a single family home, the loan limit for a conventional mortgage loan is $417,000 in most states, with the amount being slightly higher in Alaska and Hawaii.
- Jumbo Mortgage Loans: Any mortgage loan which monetarily exceeds the $417,000 limit for a single family home is considered a jumbo loan.
Who makes the decision on the monetary border between conventional loans and jumbo loans? Fannie Mae and Freddie Mac, the two government-sponsored housing resellers, set their limits depending on the current real estate market.
Jumbo Mortgage Refinancing Options
Not all lenders refinance jumbo mortgages, and the lenders who deal with jumbo mortgages will sometimes charge a higher interest rate for a jumbo mortgage than for a conventional mortgage. There are two reasons for this:
- The higher amount of money refinanced on a home, the bigger the risk to the lender.
- Jumbo mortgages cannot be bundled up and resold as easily as conventional loans, which stifles the lender's profit margin.
If a borrower has an excellent mortgage payment history and a good credit score, obtaining a jumbo mortgage refinancing is not difficult.
Various Jumbo Products
Jumbo mortgage refinancing can include all the products which are offered to borrowers that refinance conventional loans.
- Fixed rate mortgages
- Adjustable rate mortgages (ARMs)
- Interest only mortgages
- Cash-out refinances
When calling to apply for a mortgage refinance, borrowers should take care to make clear to the representative that the refinance will be for a jumbo mortgage. Since mortgage interest rates and available loan programs are often different for jumbo loan refinances, not disclosing the jumbo status immediately will result in the refinance consultant presenting inaccurate quotes of available refinance products.
Avoiding Extra Fees
Although it takes a little creative financing, some lenders offer programs for jumbo mortgage refinancing where the mortgage is split into two loans: a first mortgage and a second mortgage. The first mortgage is an amount which is just under the limit for a jumbo mortgage, and the second mortgage carries the remaining amount. This is called an 80/20 refinance because eighty percent of the mortgage is in the first mortgage while twenty percent is in the second mortgage. There must be sufficient equity in the home to qualify for an 80/20 mortgage refinance, and borrowers should be aware that the second mortgage may carry a higher interest rate than the first mortgage.
Interest Rates
Not every mortgage lender charges higher interest rates for jumbo mortgage refinancing, so it certainly makes sense to shop around to find the best deal. Potential borrowers should not feel as if they need to accept a ridiculously high interest rate simply because their refinance is for a jumbo mortgage instead of a conventional mortgage. It is a good idea to start with the current mortgage lender to inquire about interest rates and then additionally review the interest rates of other lenders.
Unless a borrower requires a cash-out refinance, it is best to avoid refinancing unless it will result in interest savings of at least one percentage point. Otherwise, the various closing cost fees will make it harder to realize any real savings.
