Reasons to Refinance Jumbo Loans

By Mitch Reynolds · Leave a Comment

When it comes time to refinance jumbo loans, there are several reasons why one would want to go through the process. Before we get into those specific reasons, let’s take a quick look at what exactly is a jumbo loan, which will then help us understand why refinancing jumbo loans can be a very good idea, depending on the situation.

A jumbo loan is a classification given to mortgage loans that are greater than $417,000 for single family homes that are located in the lower 48 states of the United States of America. For homes outside the continental USA the limit is 50 percent higher (for those who live in Alaska, Hawaii, Guam, and the US Virgin Islands). This is what is referred to as the ‘conforming limit’ – it a limit set by Fannie Mae and Freddie Mac. These mortgage giants will not help in providing funding for loan values greater than the conforming limits.

So what does this mean for you, as a person looking at a jumbo refinance loan? It means that you will have to pay a higher interest rate on your loan because such loans are considered more risky to lenders (they are more risky for a few reasons, but one of them is because it is more difficult to sell a repossessed luxury home, which is the category that most jumbo homes fall into; and, another reason is that refinance rates for jumbo loans are not subsidized by the quasi-government agencies of Fannie and Freddie).

Since refinance mortgage rates jumbo loans are higher than conforming rates, you need to make sure that you are making a wise choice in refinancing your jumbo loan. First, make sure that the rate reduction that you may receive will cover any closing costs associated with generating the loan. Don’t forget about the closing costs! However, it really doesn’t take much of an interest rate reduction on your jumbo loan to make up for the closing costs, so if you have a chance at a lower rate be sure to speak to your jumbo loan officer ASAP to find out the bottom line.

The second reason why you might be smart to think about the option to refinance jumbo loans is because you can refinance to a smaller amount owed on the loan. Let’s say you took out a loan for $500,000 and are paying the standard jumbo loan rates currently. Well, if you have since paid off $100,000 of that loan’s principle then you may be able to refinance that jumbo loan into a conforming loan, saving you not only on your monthly payments but also on the total interest cost of the loan.

Finally, you may consider refinancing your loan if you want to switch to an interest only jumbo loan, or some other type of a loan. Of course, this circumstance is much rarer, but may be a smart move depending on your situation, so make sure you talk with your loan advisor before you even think about this kind of loan option.