A residential mortgage that is larger than $650,000 is referred to as a super jumbo mortgage. It is greater than a jumbo mortgage, the term used to define loans above $417,000. The amounts are higher in Alaska, Hawaii, the U.S. Virgin Islands, and Guam.Why these numbers
The numbers are established by Fannie Mae and Freddie Mac, the two largest secondary market lenders, and are based on the national averages for loan amounts, and these bottom line numbers change regularly. When it is necessary to acquire a loan at or above the jumbo and super jumbo levels, other agencies become involved to cover the full amount. This is necessary to cover residential loans that are in excess of one or two million.
Interest rates
Because risk to the lender increases as the mortgage amount increases, the interest rates for these mortgages is higher than with conventional loans. The rates are also affected by the property type and the mortgage amount.
Risk increases cost
Since the amount of a super jumbo loan is so great, the number of insurers and investors diminishes. This shrinking of available investors has led to increasing use of specialized lenders who concentrate in this field of investment with greater compensation demands beyond the capabilities of conventional lenders.
Insurers for jumbo and super jumbo mortgages are also fewer. As such, the rates tend to be higher. All of these increases are passed along to the borrower.
Finally, rates are higher because the pool of buyers for residential properties in this range is also smaller. More time and effort is necessary to sell and re-sell the property.
Mortgage type
Super jumbo mortgages are usually short-term adjustable rate mortgages. Option ARM’s are also available as well as thirty-year fixed rate mortgages, though they are not as common. Hybrid variable rate mortgages can also be acquired with fixed rate payment intervals three to ten years.
Since traditional banks are not equipped for handling this kind of loan, mortgage lending companies handle the arranging of financing using a combination of investment banks and capital from private mortgage sources.
Strategies
Jumbo and super jumbo interest rates can be as much as half a percentage point higher than a conventional loan. To avoid this penalty, many borrowers will work with lenders and take out two mortgages at the same, with each one covering part of the total loan amount. One will be designed to cover the larger part of the borrowed amount and is considered a first mortgage. The other is considered a second mortgage, and will cover the remainder of the amount.
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