BIG HOMES NEED A JUMBO LOAN
Jumbo mortgages are used to purchase high-priced homes that require larger than normal loans. While they're convenient, they also charge slightly higher interest rates. Since the dollar amount that defines a jumbo mortgage is redefined each year, it's subject to change.
Bigger isn't always better, especially when it comes to home mortgages. The term "jumbo" mortgage applies to loans for exceptionally high dollar amounts. Each year, Fannie Mae (FNMA) and Freddie Mac (FHLMC), the government-affiliated agencies that market mortgages within the U.S., define the point at which a traditional mortgage ends, and a jumbobegins. These types of loans are increasingly popular-and necessary-for buyers trying to borrow large amounts to purchase their homes.
It may not seem fair that higher mortgages are saddled with higher interest rates, but the economic logic behind it makes sense. Both FHMA and FHLMC purchase the bulk of U.S. residential mortgages from lenders and then resell them to professional investors. They're packaged together and then traded on the market in a similar manner to the way stocks are traded on Wall Street. But jumbo loans aren't as easy as conventional loans to resell to investors, so the market for them is smaller. As a result, lenders typically charge more interest on these mortgages to help make them more profitable.