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Many people have heard the phrase “jumbo mortgage” and most likely know that it refers to a really large loan.  But did you know that some houses in your neighborhood may require a jumbo mortgage and do you know what the loan limits currently are?

So how exactly do lenders define what qualifies as a jumbo mortgage? Actually it’s the government that sets this designation for loan amounts higher than what is considered a “conventional” or “conforming” loan.  This means that, as of 2011, any amount borrowed over $417,000 in most states and $625,500 in some areas where property values are higher, including Hawaii, Alaska and California is a jumbo mortgage.

Considerations for jumbo mortgages

Keep in mind that a jumbo mortgage is not always given to those who can afford to make the payments on it. This is because there is a significantly higher amount of money going out to pay for this type of home mortgage , the risks are higher to the lender. This leads to limitations on who will purchase these loans.

If you want to obtain a jumbo mortgage, it is a good idea to invest in it only if you are confident you can qualify. There are often more limitations on things like the following:

1. The interest rate is likely to be higher than that of a conforming loan. There is more risk and therefore that means a higher cost to the borrower in the form of interest.
2. Most lenders require at least, if not significantly more than, 20 percent of a down payment. The higher the down payment, the more likely the lender will provide the loan to you. In fact, it is best for borrowers to put down enough to keep the loan under the jumbo mortgage rate if possible.
3. Because of the high foreclosure rate for homes of this value, many lenders have restricted lending for these types of purchases. Finding a lender who is willing to provide you with this type of loan can be limiting.
4. Limitations to the property.  Jumbo loans are often used for larger homes and estates – but those can often be difficult to establish a market value for, especially if the home is somewhat unique or there is a lack of comparable sales.

A jumbo mortgage is a good option if you have no risk of losing your job or not having the money necessary to purchase the home. Keep in mind that your mortgage payment, interest and the terms for these loans vary just as they will vary for any other type of mortgage loan. Comparing interest rates is also very important for those individuals who plan to obtain a jumbo mortgage. If you want to buy a home, and the value is high, find out from your mortgage lender what you need to do to qualify.

Deciding when is the best time to pull the trigger on a home loan refinance, as a rule of thumb, is not always clear. Refinancing seems like a new opportunity to get a better interest rate or perhaps even to take funds out of equity to use for your own benefit. The problem is, though, that refinancing can be costly in some situations. It is a good idea to know when to refinance and when it can cause you to end up spending more on your mortgage, rather than less.

What are good rules of thumb to refinancing? According to some experts, the following tips can help you to save money on refinancing. To learn when to refinance, consider the following:

How much is the new interest rate going to be? Most experts warn not to refinance unless the new rate will be at least one to two percent lower than what you are paying right now. Anything less than that and you may not end up saving as much (considering you have to pay closing costs on the new loan).  You must be able to compare the actual payment amounts if you want to accurately estimate if it’s a good idea to refinance. I do not fully agree with this as each situation is case by case. Sometimes 2% is not enough and sometimes .5% is a good refinances. It all depends.

Take your current loan product into consideration.  The type of current loan you have might make a huge difference.  For instance, if you have an ARM that’s at 5% currently, and can refinance into a fixed rate at 4%, this doesn’t make the 2% rule of thumb.  However the long term security of a fixed rate may be awfully attractive.  Things like mortgage insurance, loan terms and pre-payment penalties should all factor into the decision. Other exceptions apply.

Are you planning to remain in the home at least five years? If not, then refinancing may not help you to save any money. To save money on a refinance, you must stay in your house longer than the break-even period – the period over which the interest savings just cover the refinance costs. But again, call me because sometimes we have options where we can absorb costs because your break even must be within 6 months or 12 months or immediate, whatever the case may be.

 How much equity do you have in your home? If you plan to withdraw that equity, or some of it, to consolidate debt or to do home improvement projects, plan to have at least 20 percent in place. Some lenders will not allow you to borrow up to 100 percent of your home’s value, either. Some programs allow 85% while some max out at 75%.

 Do you have good credit? You may not qualify for a lower interest rate loan or save money overall if you do not have good credit. The better your credit is, the less you will pay to get a loan. If you have bad credit, it is likely that refinancing will be more difficult and will cost you.

 Know your goal. Do you want a lower monthly payment? If so, you may pay more in the long term. Do you want to pay off your loan sooner? Try reducing the term and getting a lower interest rate, too. Ensure that you can accomplish your goal.

Don’t be afraid to ask for qualified advice

The fact is if you cannot save money, then it probably doesn’t make sense to refinance. Otherwise, it may cost you more in the long term and not make any sense for you to pay the closing costs on a new loan.

The rules of thumb are great for weighing the pros and cons – but remember, they are just guidelines.  You should never make a decision as important as whether or not to mortgage your home based on general ideas, and that’s why we recommend taking the time to sit down with your favorite loan officer and get the facts. And in this situation, it’s important to be cautious with advice from friends and family members as it’s just that – free advice. 

It is important for anyone who is considering obtaining a home mortgage to learn how to calculate monthly mortgage payments or the amount of money you pay each month to buy your home. A variety of factors play a role in what this cost will be, including your interest rate, the length of the loan, your creditworthiness and the current lender’s requirements. 

More complicated than you might think

The problem with learning how to calculate monthly mortgage payments is that the process is pretty complex mathematically. In short, your loan is not the principle borrowed amount divided by the number of monthly payments. However interest plays a significant role in this process.

The real issue is that the interest on a mortgage loan is compounding, which means that it applies to the current balance of the loan. Also important is the fact that most of your monthly payment starts out with being interest payment while over time, the percentage you pay each month increases until you are paying nearly all principle.

Making It Faster

So, how can you calculate the monthly mortgage payment you are likely to pay? A good place to start is with a mortgage calculator. Many of these can be found online and are free of charge. None of your personal information is gathered in this process, and all you will just need to enter the terms for a loan you are considering and it will do all of the mathematical work for you.

This method does allow for individuals to get information right away as it does give you an instant quote on basic amounts and rates. It will also allow you to:

• Compare how much of a difference a down payment makes on the loan.
• You can determine how paying over a long period, or a shorter period can affect the monthly payment
• You can compare the interest rates of various loans provided to you by lenders

Nothing beats personal advice

The good news is that an online mortgage calculator is easy to use and can provide you with an estimate about the loan you hope to get. However, be very cautious with the information you find online as it may not apply to your specific situation.

Things to watch out for with online mortgage calculators:

• These online calculators may or may not accurately apply things like taxes, home owners insurance and other fees such as condo dues
• You may not accurately judge the rate you qualify for
• Mortgage insurance may vary depending on the type of loan
• Rates fluctuate daily

Our best advice is to speak to one of our helpful team members and get an exact quote and payment estimate for the home you want.

Cash out refinancing is a way that you can borrow money against the investment you have in your home by refinancing more than the balance you owe on your home mortgage. It’s important to remember that this is, in fact, a loan. It’s not a profit that you’re making off of your home and is definitely not “free money”. That being said, there are some significant benefits that you may be able to take advantage of by using this form of refinancing.

Benefit #1: Money

The most significant benefit is the money you walk away with. The cash out is literally money in your pocket. The amount that you’re allowed to borrow will depend upon the company you’re working with and your credit worthiness. In some cases, you may be able to borrow a high portion of what the home is worth (as much as 85% LTV) and, in some cases, you may have to settle for 70 or 80 percent of the home’s value in the total amount of the refinance.

The actual sum of the money you walk away with depends on how much you refinance for and the difference between that amount and the value of your house. You pay off the balance on your mortgage with the money you refinance and walk away with the balance in your pocket.

Benefit #2: Interest Rate Savings

You may be able to get a lower interest rate by refinancing. This is a strategy that some people use to offset what they’d pay in interest if they kept their current loan. For instance, if you owed $100,000 on a home and had a bad interest rate, you may find that refinancing the home for $120,000, paying off the $100,000 and using the additional $20,000 to pay off other bad loans may get you out of some interest debt that’s coming down the road. This is a rather popular strategy and can save you thousands in interest payments.

Benefit #3:  Taxes

If you use the money you get out of your cash out refinance to pay off credit cards or other debt, you may be able to basically transfer that debt to a form—your mortgage debt—that can be written off of your taxes in part. This means that you get more out of the money you pay toward your debts and also means that you can get out of some very common credit traps.  You should consult your NOLA Loan Officer as well as your tax advisor to find out what’s best for you!

Some people also use these loans for home improvements, which is a way to bring up the value of the home and, if you plan on selling it, a good way to finance improvements that may end up netting you more out of the sale.