‘Jumbo’ Mortgages are Now a Better Deal than Smaller Home Loans

Why? Because they have to feed the beast…

It’s true but a bit counterintuitive. Banks will give you a better interest rate if you buy a more expensive and presumably bigger home.

The interest rate on a 30-year jumbo loan – anything above $523,250 in the Boston area – stands at 3.71 percent.

That’s a notch below the rate for a “conforming” mortgage – anything below that number – which weighs in at 3.73 percent, noted Greg McBride, senior vice president and chief financial analyst for Bankrate.

The lower rate on jumbo mortgages is a reversal from the typical trend over the years, in which banks have charged higher interest rates for larger loans on the theory that they are inherently riskier, he said.

The two rates “have gradually compressed over a couple of years,” McBride noted. “About 12 months ago, they flipped.”

“It’s a good time to get a jumbo mortgage,” he added.

Jumbo rates spiked during the Great Recession, rising to more than 1.5 percentage points higher than conventional, conforming loans before settling out one percentage point higher around 2011, according to HSH.

Nor is it just size that gave jumbos their reputation as being a little riskier. While smaller, conforming loans are backed by federal mortgage giants Fannie Mae and Freddie Mac, jumbos aren’t.

But things have changed.

To where the ‘lenders’ sell the other people’s money and have no concern if the ‘loan’ is actually repaid…

More here if you want…