Bigger Loan Amounts, Lower Interest Rates: Jumbo Mortgages in 2013

by 09 Jan 2013

Sales of luxury homes in the United States made a significant contribution toward the overall recovery of the housing market in 2012, and they are largely expected to play a similar role in 2013. Even though median home prices in the United States stopped their descent and finally reached a long-awaited bottom last year, the luxury home market tends to overtake average properties in terms of price appreciation. According to the National Association of Realtors (NAR), sales of homes priced at $1 million and higher in late 2012 were more than 50 percent higher than last year.

It's not just the housing market that is enjoying the benefits of increased luxury home sales. The average high-net-worth buyer interested in purchasing real estate valued at $1 million or more could actually negotiate a cash-only transaction and skip the mortgage application process. Jumbo mortgage origination in late 2012 accounted for $148 billion, almost 25 percent higher than in 2011 and the highest level since 2007.

The Jumbo Mortgage Strategy

Wealthy home buyers are increasingly turning to jumbo mortgage as part of their real estate acquisition strategy due to the ultra-low interest rates. Overall mortgage interest rates were at historical low levels all through 2012 thanks to efforts by the Federal Reserve Bank to keep them that way. The new year did not change this trend; average interest rates for 30-year fixed jumbo mortgages in early 2013 were as low as 3.125 percent.

Record-low mortgage interest rates are expected to continue through most of 2013 as the Fed stick to its commitment to revitalize the economy, and the jumbo loan origination market will benefit from this monetary intervention. A wealthy borrower can take advantage of a 5/1 jumbo adjustable rate mortgage (ARM) at just 2.75 percent in January, but this rate could be made even lower by purchasing discount points upfront.

California-based Wells Fargo is a good example of a mortgage lender interested in building up its jumbo loan portfolio. Wells Fargo actively courts high-net-worth account holders who have more than $1 million in deposits by offering them reduced a reduced annual percentage rate (APR) on jumbo mortgages. Even those who only have $250,000 in deposits are offered a 50 percent reduction on discount points.

It's not just the rich and famous who are taking out jumbo loans. As a California-based lender, Wells Fargo knows that in some parts of the Golden State even a modest single-family residence with three bedrooms and two bathrooms can be priced above the $625,500 conforming loan limit and require a jumbo loan. Mortgage applicants who have sufficient cash reserves are encouraged to buy discount points upfront and save thousands over the life of the jumbo loan.