Jumbo
mortgage rates are inching closer to conforming mortgage rates -- what does this
mean for buyers of luxury homes?
With
lenders’ renewed confidence in luxury home values, “jumbo” rates have come down
dramatically and are nearly the same as “conforming” rate loans.
During
2008 and 2009, when lenders were nervous about the luxury home market, the
interest rate spread between a jumbo loan (>$417,000) and a conforming loan
(=/< $417,000) was 1.5%. The higher
jumbo rate, coupled with stricter down payment and underwriting guidelines,
paralyzed the luxury home market.
During
2012, the differential was .5%. Today, we
are seeing only a 1/8% rate difference in 30 year fixed rates between jumbo and
conforming loan amounts.
The
reasons for the shrinking interest rate spread are:
- Higher fees charged by
Fannie Mae and Freddie Mac are increasing the rates of conforming loans
- Demand for luxury homes
are on the rise resulting in more stable luxury home prices; lenders are more
comfortable with luxury home collateral
- Lenders are seeking to
build a customer base or cement established relationships with high net worth
clients
Although
the jumbo market we have now is very conservatively underwritten, it is the
best it has been in the past years. Some
lenders allow up to 85% loan to value with most offering up to 80%.
The
lenders are looking at the client in the jumbo loan sector and they see clients
with liquidity, strong earnings, and ability to withstand financial shock. Lenders are trying to find ways to cater to
these clients.
And,
that’s a good thing for jumbo borrowers right now.
