Mortgages today are considered “Jumbo” when the loan amount exceeds the prevailing conforming loan limit. In most parts of the country, Nevada and Clark County included, the conforming loan limit is $510,400. But in places where local real estate values are much higher compared to other parts of the country, these places are labeled “high cost.”
In these areas, the conforming loan limit can be as high as $765,600. Anything above these conforming limits is a jumbo loan. Like conforming loans, jumbo mortgages offer multiple options for Las Vegas home buyers, providing more loan choices today than there were just a few years ago.
The first decision to make when choosing a jumbo mortgage is whether to take out a fixed rate loan or an adjustable rate mortgage. Depending upon a couple of considerations, one or the other will be your ideal choice. When someone is buying a higher end home and intends to keep the property for the long haul, a fixed rate loan is probably the best choice.
A fixed rate loan means the rate will never change which then means the monthly payment for the mortgage will never change. This consistency allows homeowners to more easily plan for the future, knowing what the monthly payment will be several years from now. If the homeowners decide to take out impounds, or escrow accounts, those will change over the years and taxes and insurance change. But the principal and interest payment won’t.
An adjustable rate mortgage will have lower start rates compared to fixed-rate products. The start rate on an adjustable rate loan, or ARM, can be one to two percent lower than prevailing fixed rate programs. ARMs can typically adjust once every six to twelve months, but only under predetermined times and terms. ARMs are tied to a specific index and when a margin is added, the new note rate is prepared.
If the index is the 1-year Constant Maturity Treasury, or CMT is 2.00 percent and the margin is 2.00, the newly adjusted rate will be 4.00 percent. ARMs also have rate caps which limit the amount the rate can change at each adjustment period. A rate cap might be 2.00 percent at the first adjustment and 2.00 percent from that point forward. A lifetime cap means the rate will never be higher than say 5.00 percent above the initial rate.
The allure of an adjustable rate mortgage is the low start rate. Today the more popular ARM choices come in the form of a hybrid mortgage. A hybrid is a loan where the initial rate is fixed for a relatively brief period, say five or seven years. Start rates on hybrids are also lower compared to prevailing fixed rates.
For Vegas buyers that don’t anticipate owning the property for an extended period, an ARM or hybrid makes an excellent choice. If someone isn’t sure, however, the prudent move would be to stay with a fixed. Should rates fall in the future, there is always the option to refinance out of the existing mortgage into a new one with a better rate.
Fixed rate loans also offer different loan terms. The most common term for a jumbo loan is 30 years, so too for ARM terms. But there are other terms from which to choose. The second most popular choice for a jumbo fixed rate loan is 15 years but there are other choices, too.
Borrowers can select a loan term as short as 10 years up to 30, with some programs offering 40 year amortization periods. You’ll want to review these options with your loan officer but in general the longer the loan term the lower the monthly payment. The other side is the amount of interest paid over the life of the loan. Shorter-term loans have higher payments but over time, less interest is paid to the lender.
Once the loan program and term are selected, borrowers have additional choices. Each loan program offers different interest rates. Different rates will affect the monthly payment and the borrower can choose which rate is best for that individual’s personal situation. Lenders issue rates every day and provide different choices. Consider a jumbo, 30 year fixed rate loan. A rate might be 4 percent with zero discount points.
Discount points are a form of prepaid interest and used to lower the rate on a mortgage. Using this same example, a lender might offer a lower rate accompanied by discount points. A borrower might be able to get a 30 year rate 0.25 percent lower by paying one discount point. A discount point is expressed as a percentage of the loan amount.
Jumbo Down Payment:
Qualified buyers can pick from an assortment of down payment options, all the way up to 95%. The 10% and 5% down Jumbo options are especially popular for first-time buyers or homeowners that are waiting on a pending sale of their current home. Buyers can read all about the Jumbo Purchase requirements on the website.
Current homeowners can also learn about assorted cash-out and rate-term refinance opportunities on the Jumbo Refinance page.
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