Five Things You Need To Know About Jumbo Mortgages
What is a jumbo mortgage?
As the name suggests Jumbo Mortgages are such mortgages in which the borrowing amount is higher than the maximum amount available for borrowing under regular circumstances. Banks have various mortgage sizes available under which they choose to remain. While some lenders call it a jumbo loan if the borrowed amount is greater than $600,000, and yet others consider it jumbo if this figure is over $1 million.
The features of a jumbo mortgage
Most lenders have a set of their own rules when it comes to extending a jumbo mortgage. They all do have a minimum amount for it to be known as jumbo, and a maximum 'jumbo' amount they are willing to extend to the borrower.
Approval of jumbo mortgages
The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher-risk loans. Therefore, if the mortgage is approved, the loan has a higher interest rate. Lenders may have different methods of calculating the loan-to-value (LTV) ratio. These also may not give you the appropriate descriptions of the borrowable amount. And the requirements of the lender depending on factors such as your credit history, credit score, assets, and some other variables too. A great advantage of taking jumbo mortgages in Canada is that, unlike in the USA, is that interest rates aren't higher than conventional mortgages. The only disadvantage is that for a jumbo loan to get through, you need to wait longer and the review of the application takes a lot of time on the part of the lender as it is definitely a big risk for him.
Why approval times are longer?
If lenders are giving out a big amount of loans divided and extended to many people versus one big amount to one particular loan, their risk of getting back that amount is higher in case this one person defaults. In the loan extended to many people the risk of default is small and hence the lender needs to be incredibly careful while giving his approval for loans of bigger amounts.
Advantages of a large down payment for jumbo mortgages
While you can get a jumbo mortgage approved for a lesser down payment, you would be paying more for the duration of the loan. The cost of financing such a loan would be more as well i.e. more principal amount hence more interest. A larger down payment on the other hand means every month you will make comparatively smaller payments compared to if the down payment was smaller. A larger down payment also prevents you from having to buy private mortgage insurance if the terms allow. At least a 20 percent down payment may make you eligible for better interest rates which eventually means you pay less. And of course, a larger down payment means you will end up paying your monthly payments sooner.
If you are interested in taking jumbo mortgages or want to know more do contact LendX Financial, Mortgage Broker in Brampton, Greater Toronto Area.