A jumbo mortgage rate, just as any other loan products, is influenced by the federal funds rate. The type of loan selected combined with the length of the loan will have the greatest impact on the jumbo mortgage rate.
Today borrowers have many options to choose from. People can pick from either a fixed rate mortgage or an ARM (Adjustable Rate Mortgage) with typical terms between 10 and 30 years. The remainder of this article will delve into more detail on these various options and how the choices impact the associated jumbo mortgage rate.
When shopping for a jumbo mortgage rate choosing a fixed rate mortgage is oftentimes the most expensive of the two loan types available. The reason for this is that you are not only asking the bank to be your lender, but also your insurance agent. With a fixed jumbo mortgage rate you are protected from any increases and agree to pay a fixed interest amount for the term of the loan. Consequently, a premium is charged for the loan and the jumbo mortgage rate is higher. Despite the higher costs there are major advantages to a fixed rate mortgage. The first of which is there is never a worry that monthly payments will increase. Additionally, if interest rates rise at faster pace than they have historically, you could profit.
ARMs oftentimes provide a lower jumbo mortgage rate. The interest charged for an ARMs fluctuates with the federal funds interest rate. Payments remain the same for a fixed period of time and then adjust at intervals for the remaining term of the loan. These intervals are usually set in 1 to 12 month increments. Despite the lower jumbo mortgage rate received by choosing this type of loan there is one major risk involved - interest rate fluctuations. If jumbo mortgage rates increase more than they have historically then this type of loan could end up costing more.
Jumbo mortgage rates are typically less over the term of a loan if an ARM is selected. Whereas fixed rate mortgages are more costly, but provide the comforting of knowing that your jumbo mortgage rate will never increase. Fortunately we can help you with this decision. Fill out our jumbo mortgage rate request form for more information.