The Pro's And Con's of Jumbo Home Loans

The main advantage of jumbo mortgages is that you don't have to use hard cash to buy a big house. Imagine paying in cash a US$1'000,000 property! It isn't financially wise to do so. It would be better if you used that money for buying stock or any other kind of securities. They may give you a higher return on your investment (ROI) than the interest rate of the loan.

Another advantage of jumbo home loans is that you may use your interest payments as deductible for federal taxes. The limit per year is $1'000,000 so you could end saving a huge amount of money.

The main disadvantage of a jumbo loan is the interest rate. Right now, the interest rate of a jumbo loan is one percent higher than standard loans. This is because the lender considers that these kinds of loans have a higher risk, so they have to cover that possible danger with a higher rate.

In the case of super jumbo mortgages, the average interest rate is even higher. It is one point twenty five percent higher than the interest rate of a conventional loan.

Another disadvantage is that the mortgage company could end up asking for very hard requirements, like having as much as 50% of the borrower income in easy to be used securities.

As a final word, it is strongly recommended that you read the contract carefully. You may have to pay additional fees or a high closing cost and find yourself with no money in your pocket. Remember, only a small fraction of the mortgage loans in the USA are jumbo loans, specially designed for people who live in the Hampton, Los Angeles, Miami, San Francisco, Marin County, Chicago or Boston.

This financial instrument may not be what you need. Consider that in the last three years, the minimum amount for jumbo loans has been rising. If you can wait for a year or two you may find that the property size you wanted didn't require a jumbo loan after all. Jumbo mortgages are expensive instruments for families with average incomes. Taking the right decision could save you thousands of dollars in interests.