What is the spread of home mortgage rates for jumbo loans and conforming loans?


The spread (interest rate difference) of home mortgage rates for jumbo loans and conforming loan amounts currently exceeds 1.25% in some areas. The spread varies by area and lender, jumbo loan amount and consumer profile.

What are home mortgage jumbo loans and why they carry higher interest rates?

Jumbos are mortgage loans that exceed the single loan amount Freddie Mac (FHLMC) and Fannie Mae (FNMA) agree to purchase from mortgage originators. In general, jumbos are non-conforming loans that do not follow the guidelines as set forth by these two semi-government entities.

Jumbo loans are usually purchased by private investors and mortgage portfolio holders and they carry higher risk to primary lenders. Therefore, the rates are higher. The tighter the market, the higher the spread between conforming and jumbo loans.

In the beginning of each year, Fannie and Freddie set the conforming mortgage loan amounts. That is, every larger loan is considered a jumbo. For 2006 and 2007, conforming loan amount limits for single-family residence were set at $417,000. Jumbos were considered any loans between $417,000 and $650,000. Loans exceeding $650,000 were considered super jumbos.

You could find articles about Fannie Mae (FNMA) and Freddie Mac (FHLMC) and their activity in the appropriate sections of MortgageQnA.

Current Jumbo Mortgage Loan Limits

For 2008 conforming loan amount limits are set per region. For single-unit housing conforming loan limits are either $417,000 or 125% of the median house price for the area with the maximum set at 175% of $417,000 (that is, $729,750). Currently, a jumbo loan amounts vary around $1 million. Super jumbos are considered loans exceeding $1.5 -2 million.

Jumbo and conforming loan rates spread exceeds 1 per cent on average.

Even though loan amount limits are officially increased, the spread between residential and commercial jumbo and conforming loan interest rates exceeds one point. The reason - despite official government support, private investors purchasing jumbo loans on the secondary market are limited in number. That is, jumbo and super jumbo loans (especially super jumbos) have much lower liquidity than conforming loans and tie up capital. However, the spread for standard jumbo loan and conventional home loan rates are not necessarily huge.

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