When it comes to mortgages, borrowing big is a better deal

People who take out jumbo loans are less likely to default, bankers say. (Getty Images)

Mortgage rates remain near historic lows, and long-term rates are even lower for big loans than conventional ones.

Jumbo loans, or nonconforming loans that that exceed Fannie Mae and Freddie Mac underwriting guidelines — anything over $726,500 in Washington — currently carry rates that are on par or even lower than conforming loans, and have for several years now.

A lower rate on a larger loan may sound counterintuitive.

“The banks who are making these jumbo loans hold more than 40% of them in their portfolio. They have the appetite and there is competition for these loans, so pricing has been pushed lower for jumbo loans,” Joel Kan, associate vice president for economic and industry forecasting at the Mortgage Bankers Association in D.C., told WTOP.

Lenders who are willing to make those jumbo loans like them for several reasons.

“They keep them because these loans tend to be higher credit quality. They are lower delinquency, and they are valuable to banks for customer relationships,” Kan said.

The mortgage products that are nowhere near as popular as they once were are adjustable-rate mortgages.

During the last housing boom from 2005 to 2007, as many as one in four mortgages was an adjustable rate-product. Today, the ARM share is roughly 6%.

The rates on ARMs have limited attraction now because they are close to or even higher than shorter-term fixed-rate mortgages, such as 15-year loans.

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