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What Are Jumbo Mortgages?
Conventional loans limits are limits that are set by government sponsored lending services. The two primary financers of mortgages and home loans in the United States that set the conventional limits are Fannie Mae and Freddie Mac. Currently, conventional mortgages and home loans cannot exceed the amount of $417,000. Home loans that exceed the conventional limits are considered to be jumbo mortgages.
Jumbo Mortgages and Home Loans Risks
Jumbo mortgages present higher risks than conventional loans to both borrowers and lenders:
- Lender Risks: Jumbo mortgages and home loan lenders take on larger risks when providing financial backing for luxury homes. The niche market for homes above $417,000 is substantially lower than those within conventional loan limits. If a borrower defaults or has to move out of a home purchased with a jumbo loan, the lender may lose a lot of money if the home cannot be resold at its full price and a large sum of the loan still needs to be repaid by the borrower.
- Borrower Risks: The greatest risk for borrowers is equity. Because of the size of jumbo loans, building equity can take a while and even if equity is gained, the borrower may end up upside-down in a sale unless they possess a high equity percentage on the home. This is because of the smaller size of the luxury home niche market.
Bottom line, jumbo mortgages and home loans have higher interest rates and higher risks, but with the lowest rates we’ve ever seen, refinancing a jumbo loan can save you thousands of dollars in the long run.
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