Refinancing Jumbo Mortgages Made Easier

Are you sick of all the advertisements proclaiming that interest rates are under 5%, when you can’t get anything lower than 6.5%? Jumbo lenders feel your pain, and there may be a way around it.

Your Big Fat Mortgage Refinance

What can you do to get a lower interest rate today on a jumbo mortgage?

First, look up conforming and FHA loan limits in your area. You might be pleasantly surprised.Depending on where you live, you may be able to get a jumbo conforming loan from Fannie or Freddie or an FHA mortgage with a better interest rate. Conforming mortgage limits in higher cost areas range from $721,050 in Honolulu, HI to loans from $426,650 in Providence, RI.

But you should also consider FHA. FHA limits may be higher than conforming limits in some locations. If you live in Alameda County, CA, you can get an FHA loan up to $729,750, but only $625,500 with Fannie Mae. And if you have a duplex, triplex, or fourplex, your limits go way up.

Supersize a Jumbo Hybrid ARM

Jumbo 30-year mortgage rates are so much higher than comparable hybrid ARMs, which may be fixed for three, five, seven, or ten years. On a $625,000 mortgage, you may find a 30-year fixed jumbo interest rate at 6.5%, but a 5/1 hybrid is at only 5.25%. The 5/1 payment is only $3,451, $499 less than the 30-year payment of $3,950. Over a five-year period, you’d save almost $30,000. Or you could put your savings toward principal reduction and lower your mortgage balance by an additional $33,000 over 5 years.

Mortgage Refinancing: Two Loans Are Better than One?

Refinancing one loan with two loans?! Why? You might get a better deal by combining a conforming first mortgage with a second mortgage. Do some calculations to see if this makes sense, for example: a homeowner has a $525,000 jumbo mortgage and lives in Baltimore, where the conforming loan limit is $494,500. With a $494,500 first mortgage at 5% and a second mortgage of $30,500 at 8%, the blended rate is 5.17%.

In addition, home equity lines are typically much cheaper to process than traditional refinances. So if you save a couple of points on $30,500, that’s another $261 for you.

Watch Out for Fees When You Refinance

If you last shopped for a mortgage a couple of years ago, there have been changes. The advertised conforming interest rates you see aren’t always what you get. Fannie Mae and Freddie Mac add risk-based pricing adjustments, and unless you have a lovely credit score and a low loan-to-value ratio, a conforming mortgage rate might not be any better than refinancing a mortgage with a jumbo lender.

Mortgage Modification Might Help

Making Home Affordable modifications are available up to $729,750. If your jumbo mortgage is causing you hardship, you could qualify for a modification. Check your eligibility and then contact your lender.

Jumbo mortgage refinancing can be slightly more complicated, but the payoff is bigger too. A small improvement in your refinance rate equals greater dollar savings on larger loans.

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Debt Management: For Homeowners Only?

The best debt solution for your circumstances depends on a number of things like your income and expenses, your outstanding balances, your employment, and residential status.A debt management plan is an informal debt solution that may also involve budgeting and debt consolidation. The best debt management involves counseling and learning budgeting skills, so that you don’t end up in hot water again. Normally, your counselor contacts your creditors and negotiates lower payments and interest rates on as many accounts as possible. Then you make a single payment to the plan, and the service distributes it to your creditors.

Do You Need to Be a Homeowner?

You don’t have to be a homeowner to start a debt management plan. You just have to show that your current repayments are unaffordable, and that you are able to commit to regular reduced monthly payments.

The advantage of being a homeowner is that you may be able to add debt consolidation to your plan. By taking a home equity loan or doing a cash-out refinance, you could pay off the higher interest credit card debt and lower your payments considerably. Keep in mind that by stretching out your debt over 15 or 30 years you could end up paying more interest over the life of the loan. Still, debt consolidation by home equity loan or refinance can give you some breathing room, and you can always choose to make extra principal payments and lower your interest expense over the life of the mortgage.

Debt Management Education

An expert credit counselor is key–many so-called counselors are just salespeople who push everyone into the same plan. You want someone who provides some budgeting and credit education as well as debt management services. A reputable company should charge $100 or less, spend time evaluating your finanical situation with you, and discuss spending and lifestyle changes first. Streer clear of agencies that give you a hard sell and push a debt management program without offering alternatives. Keep in mind that non-profit status doesn’t mean that a service is any better or lower-priced. You need to evaluate it on its merits. The U.S. Dept. of Justice keeps a list of approved counselors on its Web site.

Debt Management: DIY

It’s possible to arrange a debt management plan yourself. You can negotiate interest rate freezes or reductions with your lenders directly, and if you have a good payment history with them and a documentable hardship, they are often willing to work things out. The process, however, may be time-consuming and stressful, and perhaps embarrassing. That’s why many prefer to have a debt management company deal with the negotiating, paperwork, and distribution of payments.

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Home Loan Refinance or Mortgage Modification: Is HARP or HAMP Right for You?

A traditional refinance, a Home Affordable Refinance Program (HARP) refinance, a Home Affordable Modification Program (HAMP), or a non-government modification–these are all options for improving your mortgage interest rate. But which is right for you? The HAMP program offers the best deal if you qualify–think of it as a refinance with a rate as low as 2% at almost no cost to you.

HAMP Help

HAMP is there to help homeowners with hardships avoid foreclosure. Qualifications include:

• House is your primary residence
• Mortgage is less than or equal to $729,750
• Mortgage taken out before January 1, 2009
• Total house payment exceeds 31% of household gross monthly income
• Hardship — a substantial loss of income or increase in expenses that’s not your fault AND
• Sufficient income to make a modified payment

If you qualify, contact your lender. Document your income, assets, debts, and hardship to get a trial modification and hopefully a permanent one. The average HAMP modification saves borrowers about $500 a month.

HARP Refinance

HARP is for borrowers who would be qualified to refinance except that they lack sufficient home equity. You can owe up to 125% of your home’s current value and still refinance under HARP. To qualify:

• Your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac
• You can’t have been more than 30 days late on your mortgage payment in the last twelve months
• Your first mortgage can’t exceed 125% of the value of your home

If you qualify, contact your loan servicer about a HARP refinance. You can get a HARP refinance from any Fannie Mae or Freddie Mac lender as long as your application is approved by Fannie’s Desktop Underwriter or Freddie’s Loan Prospector automated underwriting systems. If not, only your current lender can approve you under HARP. Another obstacle is mortgage insurance–with a new lender, you may not be able to obtain it.

Non-Government Help

If you don’t qualify for HAMP and don’t need HARP, a regular refinance may be your best bet–it allows you to shop for the best rate. An FHA refinance might be your best shot if you don’t have much equity.

Finally, if you’re having mortgage trouble but can’t get HAMP (say your house is a rental), call your lender. Homeowners get modifications when the lenders feel that they will lose less with modification than foreclosure.

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