Jumbo Loan Rates Set to Fall

Congress has just passed their economic stimulus plan that is supposed to put money in everyone's pocket so they can go out and boost the economy. This is the highlight of the plan, but it also covers another important provision that will be good news for homeowners and potential homebuyers.

The conforming loan limit that is insured by Fannie Mae and Freddie Mac is $417,000. Fannie and Freddie are the government companies that buy and package mortgage backed securities from banks. Any loan amount over $417,000 is considered a jumbo loan and is not insured by these entities. Ever since the subprime fallout, these jumbo loans have become expensive and average about 1.25 percentage points higher than conforming loans. Wall Street is very reluctant to purchase these securities since Fannie Mae or Freddie Mac does not back them.


The stimulus plan will instate a temporary increase in conforming loan limits to about $729,750, depending on your location. This means that these higher balance loans can now enjoy the same low rates as conforming loan amounts. But this increase will only last till the end of 2008, so interested parties must act quickly.

In my opinion, this is the best part of the stimulus package. It will allow struggling homeowners to save from $200 - $400 every month by refinancing their high balance loans. Let's hope that Congress considers making this increase in the conforming loan amount a permanent fixture.

2008 Refinance Boom May Be Looming

With the slowing economy, talks of recession, the tick up in unemployment, and the volatile stock market, the 30 year fixed rate mortgage has slowly continued to drop. A couple of weeks ago, the Feds finally took steps to combat the signs of recession by cutting the Fed rate by a combined 125 basis points. Usually the Fed funds rate has little to do with fixed rate mortgages, but it usually does not take long for fixed rates to follow the trend.

Long-term mortgage rates are already low and may go lower. Usually when the economy faces a possible recession, these rates drop. We all remember what happened to rates from 2003 – 2005, after the 2001- 2003 recession. So, if history is any indication, there is a good possibility that rates can fall further. This is good news for potential buyers, but even better news for current homeowners with decent credit that want to refinance out of ARMs or higher rate fixed mortgages.

Rates have not been this low in a long time, and it may be worth investigating whether you can benefit from this low rate environment.