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Jumbo Refinance is Costlier than Smaller Loans Staff - Mortgage Lenders Plus.com

A jumbo loan is a loan that exceeds the “conforming loan” amount set by the federal agencies Fannie Mae and Freddie Mac. In 2007, that amount is $417,000. These agencies purchase 90% of the mortgages issued in the U.S. – leaving the lender free to turn around and lend those funds again. They won’t purchase jumbo loans, leaving the issuance and placement of those loans to private banks and institutions.

Jumbo loans are a higher risk for lenders, because a default is going to require the sale of a luxury property. There is no federal insurance on the loan, as with FHA backed mortgages, so protecting a jumbo loan will be a little costlier. As a result, the interest rate on a jumbo loan will be around half a percent higher than the rate on a conforming loan issued to the same borrower. Jumbo refinance is going to reflect the same risk issues as originating a jumbo mortgage.

Jumbo refinance is also costlier than with a smaller loan because of closing costs. The points and origination fees on a jumbo refinance are going to reflect the size of the loan. Some lenders offer the opportunity to execute an extension on the loan and/or a consolidation agreement, so that a jumbo refinance won’t result in some of the recording charges and other third party bills associated with the issuance of a new loan. In other cases title insurance companies will offer up to a 50% discount often required by law for those refinancing within 1 year to 10 years. The largest discount is for within one year.

Title insurance companies also will discount their fees on a jumbo refinance if it is executed between years one and ten of the life of the mortgage. This break is required by law. Nevertheless the costs associated with a jumbo refinance can come from all directions due to the fact that the federal mortgage monolith views jumbo loans as high risk options.

Many people choose to work with a jumbo loan specialist in arranging a jumbo refinance. Experts in the field are getting much easier to find, as jumbo loans no longer are necessarily merely for luxury properties. In many California counties, the median price for a home is well over the conforming limit. In San Francisco, it is twice the conforming limit.