Recent changes to mortgage rates set by lenders are favoring the rich over the average American. Borrowers seeking jumbo mortgage loans for expensive homes are currently offered lower rates than those who require conforming loans. These changes have raised a few eyebrows, as it seems banks are targeting the wealthy in an attempt to secure promising loans.
Banks have slowly started to provide better mortgage deals for jumbo loans for months now, fueling speculation that banks are targeting the wealthy, in an attempt to secure those who appear to be a safer customer. According to some, the banks may be favoring the rich because financially well-off consumers present less of a threat, and are less likely to succumb to financial disaster.
Additionally, it seems that banks want to catch the attention of those with more wealth to purchase homes, because they usually have the financial means to place the traditional 20 percent down payment for a home loan. Most people that purchase a home through conventional means barely have enough money to use as a down payment to buy a home, and some cannot save up enough to put the conventional 20 percent down to buy a home.
However, the banks are still offering the best mortgage rates we have seen in recent years – it’s just that the rich are getting a bigger break on mortgages as an incentive to buy a home.
Jumbo mortgages explained
A jumbo mortgage is classified by the Federal Housing Administration as a home mortgage with loan limits that are greater than conforming loans. A conforming loan is a typical loan backed by the financial entities Fannie Mae and Freddie Mac. Currently homes purchased through conventional loans that are set at a price lower than $417,000 require a conforming loan. A home valued higher than $417,000 usually requires a jumbo loan to finance.
Conforming loan limits
The conforming loan limits set by the Federal Housing Administration vary every year. The current limits set by the FHA are:
- 1 unit property – $417,000 loan limit
- 2 unit property – $533,850 loan limit
- 3 unit property – $645,300 loan limit
- 4 unit property – $801,950 loan limit
In high demand areas such as Los Angeles, San Francisco, and New York, the limit for a conforming loan is different. The current limit for a one-unit property is set at $625,500 in one of these high demand cities. Areas with higher demand require adjustments because so many people are interested in purchasing property in major cities, thus increasing the value of the property.
The numbers don’t lie
Compare mortgage rates from three of the top banks in the United States and it is clear that jumbo loans are being offered at better rates than conventional loans from Fannie Mae and Freddie Mac.
|Bank||30-Year Fixed Jumbo Loan Rates||30-Year Fixed Conforming Loan Rates|
|Wells Fargo||Interest Rate - 4.125%, APR - 4.237%||Interest Rate - 4.500%, APR - 4.673%|
|U.S. Bank||Interest Rate - 3.875%, APR - 4.041%||Interest Rate - 4.250%, APR - 4.431%|
|TD Bank||Interest Rate 4.420%, APR - 4.438%||Interest Rate - 4.744%, APR - 4.803%|
Mortgage rates are constantly on the change and what may be the norm today can change in a matter of months. Anyone interested in learning about mortgage rates should get an idea about rates in their area.