Rates dip on big mortgages

Interest rates on so-called "jumbo-conforming mortgages" have dipped significantly in recent weeks. The new lower rates should make these larger loans more affordable for people who live in high-cost housing markets and can meet the qualifications to get this type of loan.

Jumbo-conforming loans were created in February, when the federal government raised the loan limits on mortgages that can be purchased by Fannie Mae and Freddie Mac, two government-sponsored corporations that buy packages of securitized mortgages from lenders. The loan limit used to be $417,000 even in most of the nation’s high-cost housing markets, but was raised to as much as $729,750 in some counties.

Initially, interest rates on jumbo-conforming loans remained stubbornly higher than rates on smaller conforming loans. But the interest-rate gap has narrowed considerably now that Fannie Mae has decided to price the larger loans in line with the smaller ones.

As a result, you may be able to get a significantly lower interest rate on a larger loan today, even if you live in an expensive housing market. And a lower interest rate means you may be able to borrow more money than you otherwise could have to buy a home or refinance your current mortgage.

Lenders still have tougher requirements to qualify for jumbo-conforming loans. These requirements include:

A sizable down payment, which may be advantageous since it creates equity in your home and eliminates the need for mortgage insurance.
Plenty of equity, which is especially important if you want to refinance an existing jumbo mortgage with a conforming jumbo.
A strong credit score.
The ability and willingness to document your income and assets.

You may be among the chief beneficiaries of the lower interest rates on jumbo-conforming loans if you want to buy a home in an expensive housing market and can make a substantial down payment or if you want to refinance an existing jumbo mortgage and have plenty of equity.

If a jumbo-conforming loan might meet your needs, you probably should act quickly because these loans still face an uncertain future. Jumbo-conforming loans haven’t been seasoned in the marketplace, and the higher loan limits are set to expire at the end of this year, unless the federal government extends the sunset date or makes the new higher limits permanent.

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