Why Jumbo Mortgages Are So Cheap

Submitted by Aaron Crowe on November 03, 2014

Jumbo mortgage rates are at 25-year lows , beating interest rates on traditional, conforming loans. At first glance, that doesn’t make sense because jumbo loans are for expensive homes.

Why would a bank give a lower loan rate to someone who wants to buy an expensive home? If they can afford a higher priced home, can’t they afford a higher loan rate? Why help the rich get richer?

The answer is simple economics, along with some greed to attract more wealthy clients.

“The rates on jumbo loans are a symptom of the overall credit markets,” says Bennie Waller, a professor of finance and real estate at Longwood University in Farmville, VA. “Lenders are very conservative in the lower- and middle-priced home markets. Such borrowers need a high credit score and an above average amount of capital. That is, lenders are focusing on the most highly qualified borrowers.”

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