The Risks of A Jumbo Mortgage

Fannie Mae and Freddie Mac are two government sponsored lenders who set the standard for loans, and buy the bulk of residential mortgages from banks and other lenders. When their limits don’t cover the full loan amount, it’s referred to as “Jumbo Mortgage.” Lenders will service a jumbo mortgage, but the borrower must understand upfront that not only will the interest rate on a jumbo mortgage be greater, but because the lender is taking a greater risk, the spread can fluctuate between .25 and .5% or even higher.

Something else to be prepared for, although it is a subjective thing, is that lenders may sometimes require two appraisals before approving the loan. Refinancing is also a consideration, as refinancing a jumbo mortgage can be affected due to closing costs. Instead, some lenders may offer a service of an extension (consolidation) agreement, to keep the borrower from having to pay the mortgage tax again on the same principal. If you want to speak to a lender about working on a Jumbo Mortgage, consider consulting a professional who specializes in them before making any decision.