When To Do A Jumbo Loans Refinance

By Mitch Reynolds · Leave a Comment

There are certain times when doing a jumbo loan refinance can make sense (literally), and can save you a lot of money. When done properly, refinancing a jumbo loan can be one of the best moves you could ever make as a homeowner. However, when not done correctly, the refinance can be very costly for years to come.

Refinance When Jumbo Loan Refinance Rates Decrease

This is the most obvious time to refinance a jumbo loan. However, you need to make sure that the increase in savings due to the lower interest rates offset the jumbo loans refinance cost. In addition, you need to make sure that you don’t face any prepayment penalties (although the latter issue is a concern with any refinance).

Refinance When You Can Convert To A Conforming Loan

This is something that not everyone thinks about, but it can be possible to convert some jumbo loans to conforming loans under a few circumstances:

1. When you have paid enough of the principle of the loan down so that the amount owed is less than 80% of the current jumbo limits. For example, let’s say you took out a jumbo loan 5 years ago and have made payments sufficient enough to bring the loan value (what you owe the bank) down to $300,000. With current limits at $417,000 you may be able to do a jumbo refinance and convert the loan to a traditional loan, thus saving you on your interest costs.
2. When the current limits are increased above your loan value. For this, you should make sure with your mortgage lender that you would qualify, but this could make it possible for you to do a jumbo mortgage refinance.
3. If you choose to pay down the loan to an amount that is qualifying. Some people in certain variable rate jumbo loans have opted to go this route, even using their 401K, in order to get a conforming loan and save thousands of dollars in variable interest rate costs. NOTE – it’s very important that you consider ALL the benefits and disadvantages of this type of jumbo loans refinance, because you very well may be hurting yourself in the long run. Many times the negative tax implications combined with the lost future gains of cashing in your 401k early make this transaction a losing one for you and your family. Of course, if you have other cash stashed some other place this option can be a very good one for certain people with high variable rate jumbo loans.

Remember, there are times when refinancing is not the best option for your loan – like when the refinancing costs are very high, or interest rates are higher than when you originally took out the loan.