"Jumbo" mortgages can cost more for homeowner

Real Estate Watch

October 10, 1999

Homeowners using "jumbo" mortgages to finance their luxury homes end up paying more than a quarter-percentage point higher than those who qualify within conforming-loan guidelines.

A Freddie Mac mortgage market survey found that when mortgage rates peaked in August, jumbo mortgages -- those that exceed Freddie Mac's conforming loan limit of $240,000 -- rose to 8.46 percent, while interest rates for conforming loans -- those at $240,00 or below -- were at 8.15 percent.

"This translates into a $12 billion per year savings for families with conforming fixed-rate loans," said Frank Nothaft, deputy chief economist for Freddie Mac.

According to Freddie Mac, the average homebuyer with a $330,000 jumbo mortgage paid an additional $865 per year in interest.

Freddie Mac buys mortgages, within their loan limits, that are issued by banks, thrift institutions and other mortgage lenders. It then packages the loans and sells them to investors as mortgage-backed securities.

Freddie Mac said jumbo mortgages account for 20 percent of the market, estimated to be $231 billion.

Of those jumbo loans, adjustable-rate mortgages tend to be the more popular choice with borrowers compared with the conforming loan market. In 1998, the ARM share was 41 percent for jumbo loans and 10 percent for conforming loans.

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