If you plan on buying a house in a costly residential area in Boston such as Beacon Hill or Cambridge for a large family it will cost a lot (that’s part of the allure), so if you need a mortgage loan to finance the purchase you may have to approach a lender for a Jumbo Loan. A Jumbo Loan is a special type of loan wherein the base amount is higher than normal conforming loans. While the advantage of this loan is more money, because of the same reason the interest rate is also higher.
|Photo by 401K|
Characteristics of a Jumbo Loan
- Amount: A Jumbo Loan (as can be inferred from the name) is a loan where the amount of money which is lent by a lender is higher than a normal loan. So if you plan on buying a luxury apartment or residence with all the latest amenities and comforts and require financing, this is the loan you should apply for.
- Interest Rate: The interest rates for Jumbo Loans are much higher than normal mortgage loans. This is because of the increased risk which is placed on the lender. Unlike normal conforming loans wherein the lender has a safety option of selling the loan to Fannie Mae and Freddie Mac, in Jumbo loans the lender does not have this safety net. In addition to the above, Jumbo loans are usually applied for luxury apartment, in case of a foreclosure these apartments are harder to sell than normal apartment and the price of such apartments is also vulnerable to fluctuations in the market (which may result in a net loss to the lender). Because of the above risks which the lender takes, the interest rate is set at a higher level.
Types of Jumbo Loans
Like other mortgage loans, Jumbo loans are also available in two forms:
- Fixed Rate Loans: Here the interest rate for the house will be the same throughout the period of the loan. While it will cause lower stress levels, the interest rate will be a little higher than adjustable rate loans.
- Adjustable Rate Loans: The interest rate on these loans will change based on the market. So you will find a lower interest rate if the market is good and a higher interest rate if the market is bad.
No matter the type of Jumbo Loan, sit down and talk to the lender to make sure that you get the best deal possible.