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Sep 05 2013

Jumbo rates dip below traditional rates!

This is one for the record books. Historically, if you wanted to get a “Jumbo” loan – a larger loan – for you home, you had to pay more in interest. In my 25 years of real estate experience, I have NEVER seen the jumbo rate lower than the traditional or conforming rate. Suggesting this kind of thing would be like claiming water is dry and the sun rises at midnight.

However, according to a recent article by the Wall Street Journal, that is exactly what has happened. So what is the main difference between the two? Well, aside from the obvious difference between the amounts borrowed, there is the interesting fact that jumbo loans are not backed by the government! That’s right, the conforming loan rate is propped up by Fannie Mae and Freddie Mac.

Do we even need Fannie Mae and Freddie Mac?

With this news, you really have to start to question whether or not Fannie and Freddie are even needed. If you listen to the political talking heads, home lending would come to a halt without their benevolent intervention. This situation seems to indicate that where there is a need, private enterprise will step in to fill it. Huh, funny how a free market works.

 

The actual numbers looked something like this:

 

 30 Year Fixed Rate Loan  30 Year Fixed Rate Loan

“Jumbo”

Rate

Conforming

Rate

4.71%

4.73%

 


Conforming loans do not exceed $625,500 – but that amount is only available in areas where real estate prices tend to be high. If you live in the saner parts of the country, that maximum drops down to $417,000.

What is most interesting about this scenario is that you could end up paying a little LESS for borrowing a little more!

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