A Jumbo (Mortgage) Opportunity

If you’ve been thinking about buying a more expensive home, now is the time to make a move. That’s because interest rates on jumbo mortgages, which in the Chicago metropolitan area are loans over $417,000, have fallen below rates on smaller conforming loans.

How often does such an inversion occur? Try never. Yes, economists believe this is the first time jumbo mortgage rates have gone upside down on conforming rates, which means luxury buyers have a historic opportunity that probably won’t be available for very long.

Traditionally, jumbo mortgage rates are at least a quarter of a percentage point higher than conforming rates. When the housing bubble burst and investor appetite for jumbo loans disappeared, the gap widened to nearly two full percentage points. Gradually, as the market recovered, the spread normalized.

So what caused the recent flip? Sharply rising interest rates on conforming loans coupled with the current inclination of banks to hold jumbo mortgages on their balance sheets. Banks can make these loans at attractive rates and, in the process, establish potentially lucrative relationships with high-net-worth clients.

A few weeks ago, for what is believed to be the first time ever, the average interest rate on a 30-year jumbo mortgage was 2 basis lower than the 30-year conforming rate. It was a similar scenario for jumbo ARMs, which also fell below conforming ARMs.

According to Chicago-based mortgage banker Guaranteed Rate, we can expect parity between jumbo and conforming rates for a few months. But both rates are expected to rise as the economy improves. Interest rates on conforming loans have already increased a full percentage point since May.

So if you’re looking to refinance or purchase a more expensive home, you have a once-in-a-lifetime opportunity to actually borrow more money at a lower rate. Contact your @properties agent for more information and to learn how @properties’ industry-leading sales and marketing programs help buyers and sellers achieve better results.

Written by Kelly Maguire
Kelly is the corporate communications manager for @properties.