If you’re thinking about purchasing a luxury home or a house in an area with high property values, a jumbo loan may be necessary. (Photo: Naomi Ellsworth, Unsplash).

 

Michaela Phillips, Guaranteed Rate, Inc.

Michaela Phillips, Guaranteed Rate, Inc.

If you’re thinking about purchasing a luxury home or a house in an area with high property values, a jumbo loan may be necessary. Buyers with their sights on a home priced higher than the local conforming loan limit set by the Federal Housing Finance Agency often need to apply for a jumbo loan. Since these loans aren’t backed by Fannie Mae and Freddie Mac, they’re riskier for lenders and require stricter criteria for qualification. If you’re considering a jumbo loan, it’s helpful to know that interest-only fixed or adjustable rate options have recently become available again for those looking to purchase a primary residence. Here, I share more about these options to help you determine the right path forward.

What is an interest-only 30-year fixed rate mortgage?
An interest-only mortgage allows the borrower to pay just the interest on the loan for a set amount of time. This may be an appealing option for those looking to improve their cash flow for a few years. For those who choose a fixed rate interest-only 30-year mortgage, you’ll pay only interest for 10 years before the loan is amortized for the remaining 20 years.

What is an interest-only adjustable rate mortgage?
Borrowers who choose an interest-only adjustable rate mortgage will pay only the interest on the loan for the introductory period, which is typically seven or 10 years. Many interest-only ARM loans are structured as 3/1, 5/1, 7/1 or 10/1. For example, if you choose an interest-only ARM structured as 10/1, you’ll pay just interest for the first 10 years. After this, your rate will change once per year and you’ll begin to pay the principal over the remaining term of the loan.

Who is a good candidate for interest-only jumbo loans?
Interest-only fixed or adjustable rate mortgages aren’t the best fit for most buyers. However, if you have impeccable credit, ample reserves, and a low debt-to-income ratio, this type of loan may be a good choice. If you’re interested in pursuing this option, keep in mind that the minimum down payment is 30 percent and the maximum loan amount is $1,000,000.

Interest rates are currently at a historic low, making it a great time to buy for those who are ready.

By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.443.6292, e-mail michaela.phillips@rate.com or visit michaelaphillips.com. NMLS: 312874.