For home buyers, it can pay to go big. In a twist on long-standing practices, interest rates on mortgages for pricier homes are now cheaper than mortgages that accompany lower-priced properties. That’s because interest rates on regular mortgages are largely set by the investors who buy the loans, such as Fannie Mae and Freddie Mac, and the costs associated with these loans have increased. Jumbo mortgages, by contrast, are mostly held by the banks that make the loans, and lenders have lowered those rates to attract desirable borrowers. For some home buyers, the shift in mortgage rates presents an opportunity to get a larger loan, and a better home, without having to pay a higher interest rate. However, banks are requiring higher credit scores for these loans, and typically favor borrowers who have substantial assets and an established relationship, such as a large deposit or brokerage account, with the bank.
Wall Street Journal October 13, 2014
