Mortgages, down payments

Lenders are now offering interest rates on jumbo mortgages that are more than a quarter of a percentage point lower than those guaranteed by Fannie Mae and Freddie Mac.

Conforming loans are required by government-run agencies to be less than $417,000 except for high-cost areas (i.e., New York and California), where the maximum is $625,500. Typically, jumbo loans exceed those limits and are subject to higher interest rates — 0.25 percentage points or more than banks charge for conforming loans, according to the Mortgage Bankers Association. As reported in the last couple of months, the interest rates for these loans have switched.

Last week, a bank offered a 30-year jumbo mortgage rate of 4.125%. This is quite a bit lower than the 4.5% it was offering for a 30-year, fixed-rate conforming loan. Another bank advertised a jumbo loan for 3.875% last week compared with 4.25% for a conforming loan. Jumbo loans are now very attractive for buyers and those wishing to refinance.

The reason for these lower rates is that banks wish to attract and retain wealthy clients. Frequently, when banks provide a mortgage to a client, they can offer them other products or services. The banks learn a great deal about a prospective borrower when the persn applies for a mortgage and they can determine from this process what other products or services might be of value to them.

The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, is seeking to increase the reserves of the two agencies against losses from non-performing loans. The FHFA has been raising fees and other borrower costs in its efforts. As Fannie and Freddie do not guarantee jumbo mortgages, these fees are not being passed on to borrowers, as they do not apply.

According to some mortgage brokers, the real deals are on jumbo adjustable-rate mortgages. One bank is offering a five-ARM product for 2.375%. These type of ARMs increase to a higher rate after five years and change every year afterwards. This product is not for every borrower because buyers can become locked in unless they move within five years and they can be stuck with high interest payments while their income did not increase as expected.

Another development is that the average down payment for 30-year fixed-rate mortgages decreased 15.73% of the home’s value in the third quarter, according to Lending Tree. Lenders are trying to attract borrowers now that home values are improving across the country. There are fewer non-performing loans and more qualified buyers in most markets.

The average down payment remains a higher percentage of the property price in states with some of the highest home values. For example, the average down payment in New York is 18% and in California it is 18.6%, as compared to Arkansas and Alabama with a 12.9% down payment.

In closing, we wish you and your family a very Happy Thanksgiving.


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]com.

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