Prior to the credit crunch/liquidity issues, credit and money was easier to get. Jumbo loans (loans over 417K), which are securitized and sold on Wall Street, had a rate that typically was .125% to .375% higher than Conforming loans (417K and under). Now any loan that is not backed by FNMA or FHLMC securities for conforming conventional loans and GNMA securities for FHA and VA loans have fallen out of favor and are riskier as far as Wall Street is concerned. This has caused the rate spread between conforming and jumbo loans to widen to as much as .75% to 1.00% depending on your credit profile, down payment, etc.
While I expect that this rate spread would decrease again over time, it does not help if you are considering a move to upscale Real Estate in the Minneapolis area now. I have a solution to avoid this increased rate spread if you need to borrow more than 417k.
If you want to stay with a fixed rate loan, one option is to take a conforming loan and the balance needed in the form of a 2nd mortgage. For example: if you need to borrow 500k, and choose to only have one loan, the jumbo rate is 6.75% which would give you a P&I payment of $3,242.99 (APR 6.819%). On the other hand, a conforming loan of 417k at 6.00% would give you a P&I payment of $2,500.12 (APR 6.067%). The balance needed of 83k as a 2nd mortgage at 7.50% would have a P&I payment of $580.34 (APR 7.50%) for a total of $3,080.46 – saving you $162.00 per month. Both scenarios assume a 20% down payment.
This is not an offer to enter into any agreement and may only be made pursuant to Subdivision 3 and 4 of Minn. Statute chapter 47. Rates and terms are subject to change without notice.
Contributed by Pat Barney
As a mortgage professional, I have been serving the Twin Cities Real Estate market for over 20 years providing a wide array of mortgage products for you, my client, in a way that educates and identifies what options would be best for you.
I have built my reputation on providing an exceptional level of service and expertise that is guaranteed to exceed your expectations. This means you can count on me to look out for your best interest throughout your real estate purchase.