30 Year Fixed Jumbo Mortgage
Article by Mortgage Guru
Riley and Mia Cooper wanted to buy a home which would cost them 0,000. The couple wanted the home to be a permanent one since they did not want to move away. So they opted for a 30 year fixed jumbo mortgage. Pooling their resources, they worked out that they could make a 10 percent down payment and would mortgage the property for the remaining amount. Since the required amount for the purchase was 0,000 which was above the conforming loans that Fannie Mae and Freddie Mac could buy as their cap on the dollar value of purchase could not exceed 7,000, the Coopers had to look at banks and other financial institutions that might be willing to help them. Any amount above the cap would be called a jumbo loan and hence the Coopers opted for a fixed jumbo loan for tenure of 30 years. Riley and Mia could now easily budget their income and since they opted for a fixed rate mortgage, they knew to set aside a fixed amount of money to pay their mortgage every month. It made their lives easy.
A 30 year fixed jumbo mortgage is where the time duration for the repayment of the loan amount would be spread over 30 years and the rate of interest with which it would be paid back would never change during the life time of the loan. This could be advantageous as the monthly payment would be fixed and the payments over time would be treated as routine essential expenditure by the debtor. In the long run, in case the debtor continues to remain in the same or better financial situation as when the loan was availed, then it will not pinch his or her pocket. However if the financial situation has worsened from the time of first availing the loan, then the debtor is stuck with the fixed rate of interest and fixed payment amount which might be a big burden. Since the lender would not be able to change the rate of interest charged on the loan, generally, the interest charged would be higher than 30 year adjustable mortgage.
30 year mortgage rate may either be fixed or adjustable. A 30 year adjustable rate mortgage or 30 year ARM would generally be offered at lower rates during the initial years. The 30 year ARMs would generally be offered as 3/1, 5/1, 5/6 loans. These terms would mean that the rate of interest payable would be fixed for the first three in a 3/1 ARM and then the rate of interest would adjust as per the market value once every year. Alternately in a 5/6 ARM, the rate of interest would adjust every six months after the initial five years. Whichever type of ARM is chosen, an ARM would be beneficial to those who would not want to hold on to the house for a long time and who know that they would move before the fixed rate period on the mortgage ends. This type of loan would also be beneficial for those who plan to refinance before the fixed rate period ends.
Despite the advantage of availing a 30 year mortgage with fixed interest rate, most people might want to avail a 30 year ARM. This might be because with a fixed rate mortgage, even if the mortgage rates drop the rate of interest payable would not be reduced whereas with an ARM, the drop in interest rate would mean a lower payment. However with increase in home loan rates, the debtor would have to pay a larger sum towards the ARM. Due to the volatility of the ARM interest rates, many debtors would benefit to enter into a rate lock with their lender. When one enters into an agreement for locking of rate, the creditor agrees not to raise the interest beyond a specific price when interest rates go up and the debtor agrees to pay at a specific rate of interest in case the interest rates drop below the specified level. Thus both parties would be benefitted.
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