Jumbo Mortgages Pick Up Pace

Jumbo home loans have picked up pace rapidly within the last year and recovering much faster than the rest of the mortgage market.

Jumbo mortgages, which are bigger and are usually reserved for luxury homes, are making a big comeback. In total, lenders distributed $38 billion in private jumbo mortgage loans during the second quarter of 2012, which was 65% higher than the previous year. The demand for these loans has likely increased because of the rise in the sale of luxury homes.

The sale of $1 million and higher homes increased by 19% during July, when compared to the previous year, according to a report recently released by the National Association of Realtors.

Unlike the most common residential mortgages, and loans for bad credit borrowers, jumbo home loans are not eligible for government backing and are then kept on the lenders books. If the loans default, the lender incurs all the losses. These loans aren’t eligible for government backing because of the loan amount cap in place for entities such as Fannie Mae and Freddie Mac, which won’t back loans larger than $417,000. That figure is flexible in more expensive real estate markets.

Jumbo mortgages are more affordable now than just a year ago because of lower interest rates. Rates on a jumbo loan now average 4.22% for a 30-year time period. That percentage is down from the 4.82% posted just last year, according to HSH.com.

While lenders are left with the debt if the loan defaults, the allure is clear. These loans are more profitable because of the interest banks receive and the large down payments required. Typically the down payment on a jumbo mortgage is 20% to 25%. If the loan is more than $1 million, that down payment could be upwards of 30%.