15-Year Jumbo Mortgage
The Federal Housing Authority was established in 1934 to provide a vehicle for the Federal Government to make reasonably priced mortgages available to the public. The FHA took up the role of purchasing mortgages that were below a certain amount and insuring them. Then mortgages are then packaged and sold to investment firms and others through the securities market. The practice remains an important part of the mortgage business today - 90% of all mortgages issued in this country are secured by the FHA.
The agency sets its mortgage amount cap annually based on median home prices throughout the country. In 2006 and again in 2007, the largest mortgage the FHA will acquire is $417,000 except for Hawaii, Alaska and Guam where housing prices have gone way beyond the market on the continent. Mortgages at or below this amount are known as conforming loans. In expensive housing markets homebuyers often need to borrow more than the FHA cap; these are known as jumbo mortgages.
Jumbo mortgages are sold and insured through private institutions. While they are considered less likely to go into default because of the relative affluence of their borrowers, nonetheless they are priced higher than a conforming loan because of their size and because they lack government backing. A thirty year jumbo mortgage is, at the moment, averaging an interest rate of .25% higher than the best rate on a thirty year fixed mortgage. Those rates (in May 2007) are 5.90% for a fixed rate thirty year conforming loan and 6.15% for a thirty year fixed jumbo mortgage.
15-year jumbo mortgages are also costlier than their conforming loan counterparts. A fifteen year fixed conventional loan is averaging and interest rate of 5.6% as of this date, while the fifteen year jumbo mortgage is averaged at 5.8%. The borrower that opts for a fifteen year jumbo over a thirty year jumbo would in this market receive an interest rate .35% lower for the shorter term loan. That's a significant savings - but it also calls for a much larger mortgage payment.
On a $500,000 mortgage, the payments on a thirty year jumbo at 6.15% would be $3046, exclusive of taxes and mortgage insurance, if any. The monthly payments on a half million dollar mortgage for fifteen years would be $4260. For a fifteen year jumbo, the mortgage payment (with today's rates) is 39% higher than for a thirty year jumbo in the same amount.
On the other hand, the interest savings are impressive. Total interest on the $500,000 fifteen year jumbo mortgage is 266,783. For the thirty year jumbo the interest total is a frightening $596,611. The total interest paid on a thirty year jumbo is almost two and a quarter times (or 225%) of the amount on the fifteen year jumbo mortgage. From another perspective, total interest on a fifteen year jumbo is a little over 44% of the total interest paid on the longer loan.