Jumbo Mortgage: Millions Excited About the Savings
By: Jeff Bowman
May 24, 2010 (FreeRateUpdate.com) – For the last month we have had a rare confluence of negative geopolitical, economic and environmental events that have pushed jumbo mortgage rates to the lowest level in history. In particular, the government debt crisis in Europe has caused a global “flight to quality” in which money managers of mutual funds and pensions around the world move money into US government securities and “safe” mortgage bonds causing the interest rates to fall. The price and yield of bonds moves inversely so as money managers bid up these bonds, jumbo mortgage borrowers see lower and lower rates. The mortgage industry has seen a flood of new applications for jumbo loan refinancing in the last two weeks and especially so in the last few days as word spread throughout the mainstream media about the record low jumbo mortgage rates. Now the application volume is interesting, we noted that it is largely coming from the most financially informed among the public. The folks that read Bloomberg, Money Magazine,watch CNBC and check their E-Trade account via their iPhone.
I was thinking about this while walking out of the local Costco. I often observe the frantic excitement over some item Costco has on sale via an additional coupon. The buyer knows the average price on the street, the Costco price is always lower but with the coupon they would be crazy not to buy 3 packages of Dove soap. Because the housewives and mom’s that are charged with buying the basics know they are getting a great deal. The same can be said for the lines down the street to get gas at Costco. Often 20-30 cars are waiting to fill up because Costco sells gas at .10-15 cents below surrounding gas stations. People know the value because they know what gas costs elsewhere. Costco likely doesn’t make much money in this department but it sure gets people to come to the store. A classic “loss-leader” item.
Now, the folks who phave the several hundred billion dollars of jumbo loan mortgages outstanding in the country should be checking in with us because the jumbo mortgage rates available are the lowest in history following all the negative news forcing money into the safety and security of SOLID mortgage paper. The average rate on a jumbo 5/1 ARM which was the hot product in the real estate boom has a national average rate of 5.25% and the average 30Y fixed jumbo mortgage is at 6.25%. This is the average rates from the last Corelogic report of the jumbo loans outstanding.
Today a well qualified client with 20%+ equity,a 720 FICO or better, owing $1m on a primary residence could lock in the following jumbo loan rates in the majority of states:
5/1 ARM 3.80%
7/1 ARM 4.55%
10/1 ARM 4.90%
15Y Fixed 4.375%
30Y Fixed 5.25%
With a bit more equity and a higher FICO score these jumbo loan rates are even lower. I think people need to get crazy excited about the savings and lock in the lowest jumbo mortgage rates we have ever seen. Most people refinancing are saving 1-2 thousand dollars a month because they are dropping their interest rates over 1%. And above all please get a jumbo loan that makes sense for your short and long term financial plans. As always, have a prosperous day.