Jumbo Mortgages

You, too, might personal a McMansion because of low jumbo charges – Orange County Register


What’s stopping you?

Maybe you can afford a Southern California McMansion, too. How about if you only pay interest and not the principal at a mortgage rate of 1.875% for the first three years?

For a $ 1.5 million loan on a $ 2 million home, your home payment is capped at $ 2,344. Assuming a monthly property tax of $ 2,083 (1.25% annual property tax rate) and $ 250 for monthly home insurance, your total home payment will be $ 4,677.

It would cost you about $ 6,000 a month to rent a $ 2 million home in Southern California, said Lance Siegel, president of the Lake Forest-based HVCC Appraisal Ordering.

Yes, you need good credit. You must be income qualifying, have $ 500,000 on a down payment, and have greater than $ 30,000 in settlement fees. And make sure you have Plan B ready in three years when your mortgage amortization schedule begins and your principal, interest, tax, and insurance payments soar to nearly $ 9,300 per month.

But the financing costs are ridiculously low in the beginning.

If the interest rate and payment insecurity makes too much heartburn for you, you will find longer lock-up periods of five, seven or ten years with 30-year mortgages in the interest rate range of 2% to 3%.

Even 30-year jumbo fixed prices are super cheap. I’ve found prices as low as 2.375% for Inland Empire properties, with jumbos starting at $ 548,250. In Los Angeles and Orange Counties, where jumbos start at $ 822,375, prices are just 2.625%.

What’s wrong with all that easy-interest mortgage money?

It’s like water is at its lowest point. There is so much private capital just looking for a parking space for some sort of return.

The three-year interest-only program is particularly cheap now because people are investing in mortgages to hedge against a possible surge in inflation with the expectation that short-term rates will rise in the next few years.

Investors now get some and some long-term protection as well, as adjustable rate mortgages are recalculated based on the Secured Overnight Financing Rate (SOFR), the common benchmark that has replaced the corrupt London Interbank Offering Rate Index (LIBOR).

For the starting rate of 1.875%, the 30-day average SOFR is 0.50. The profit margin added to the index is 2.75%. If nothing changes during the three-year introductory phase, the mortgage interest rate would jump to 3.25%.

Assuming no capital was added, the total payment for this $ 2 million McMansion would nearly double to $ 9,293 per month. That’s the “amortized” payment of $ 1.5 million for the remaining 27 years at 3.25% plus taxes and insurance.

The rents continue to rise. I am getting more and more complaints from readers and customers who say that there are no reasonable rental properties – let alone bargains.

If you buy now instead of renting, you could look like a genius in three years as house prices continue to skyrocket. And you could enjoy big stock earnings with cheap and easy money. Or if the real estate boom turns into bankruptcy, you might simply regret such a trick.

It’s a tough call. But one thing is certain: cheap, almost free money would be guaranteed for the next three years.

Freddie Mac rated news: The 30-year fixed rate averaged 2.86%, 2 basis points lower than last week. The 15-year fixed interest rate averaged 2.12%, 7 basis points lower than in the previous week.

The Mortgage Bankers Association reported that the volume of mortgage applications was unchanged from the previous week.

Bottom line: For example, let’s say a borrower receives the average 30 year fixed rate on a compliant loan of $ 548,250, then the payment last year was $ 3 higher than this week’s payment of $ 2,270.

What I see: Well-qualified borrowers locally can get the following fixed-rate mortgages at 1-point costs: a 30-year FHA at 2.125%, a 15-year conventional at 1.875%, a 30-year conventional at 2.5%, a 15-year conventional high balance ($ 548,251 to $ 822,375) at 1.99%, a 30-year conventional high balance at 2.69%, and a 30-year fixed jumbo at 2.625%.

Eyecatcher credit of the week: A 15 year fixed rate at 2.375% with no cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.