Cheaper Jumbo Mortgages Drawing Wealthy Buyers

Cheaper Jumbo Mortgages Drawing Wealthy BuyersJumbo mortgage loans are not for most house-hunting borrowers. They normally don’t come cheap since their not backed by Fannie Mae or Freddie Mac.
But little has been normal in the housing and credit markets for years, and jumbo loans are suddenly popular and cheep, a rare combination.
Historically, jumbo loans have been priced at a premium.
But the jumbo loan market has become an attractive option for the rich, especially since mortgage rates have surged more than a percentage point in recent months on so-called conforming loans.
There is now a borrowing spree among the wealthy that reflects the disparity in the mortgage market.
Interest rates on jumbo mortgages — loans over $417,000 in most areas and over $625,500 in higher-priced areas — are now lower than — or close to the same — as rates for “conforming loans” below those price levels.
The Mortgage Bankers Association last week reported that the average contract interest rate for 30-year fixed-rate mortgages, with jumbo loan balances (greater than $417,000), decreased to 4.71 percent from 4.78 percent, for 80 percent loan-to-value loans.
Meanwhile, average contract interest rate for 30-year fixed-rate mortgages, with conforming loan balances ($417,000 or less), decreased to 4.73 percent from 4.80 percent, for 80 percent loan-to-value ratio (LTV) loans.
New data finds that wealthy home buyers are increasingly turning to jumbo mortgages to buy homes.
According to RealtyTrac, 46 percent of people buying houses ranging from $2 million to $5 million used mortgages in July — up a big 27 percent compared to a year earlier. With purchases of $1 million to $2 million, the use of mortgages jumped to 63 percent from 49 percent.
The wealthier house-hunters are jumping in the market to scoop up homes before rates go even higher, and jumbo loan rates are attractive enough as financing tools to lure these buyers off the fence.
“With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates,” Daren Blomquist of RealtyTrac to CNBC. “With the wealthy it’s more of a financial decision.”
Despite the growing popularity of jumbo loans, cash remains king at the high end of the real estate market. More than three-quarters of buyers of homes priced at $5 million or more used cash for their purchases in July — that’s up from 56 percent last year.

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