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September 9, 2013

Why Jumbo Mortgage Rates Are Lower than Conforming Interest Rates

Category: Financial News,Published Articles – admin – 4:21 pm

Did you know that rates on jumbo home loans are actually lower than lenders are offering on conforming loan amounts? It’s hard to believe that larger loan amounts that typically have a higher rate of default can be accessed at a lower rate of interest. For the better part of the last decade, conventional interest rates were quite a bit lower than jumbo loan rates.

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According to the Wall Street Journal, conforming mortgages carry a higher interest rate because of policy changes of the federal reserve and government sponsored enterprises, like Fannie Mae and Freddie Mac.  According to Nick Timiraos, Freddie Mac and Fannie Mae, have increased the fees those companies charge to brokers and mortgage lenders, which has in effect caused interest rates to be higher for popular conforming loans that are backed by Fannie Mae or Freddie Mac.

Meanwhile, interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors brace for a slowdown in the Federal Reserve’s bond-buying program, which has included those mortgage bonds. That has boosted rates on conforming mortgages . Jumbo house loans, meanwhile, are typically kept on banks’ balance sheets, which means prices aren’t usually set by bond markets. According to Brad Blackwell, the executive V.P. of Wells Fargo, “Banks have more deposits than loans today, so the desire to put that money to work, as well as the fact that it’s at a very low cost, allows us to make non-conforming mortgages at a very good interest rate.


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