If you were one of the lucky home buyers last year to obtain one of these loans—worth over $417,000 because of the low interest rates and attractive payment options, well things are changing this year in 2014.
The Consumer Financial Protection Bureau will still allow lenders to offer this type of mortgages, but there will be fewer interest-only and balloon-type mortgages written, because they fall outside the safe zone of “qualified mortgages”. Some lenders are even requiring larger down payments from these high end interest-only loans—35% vs. 20%. Also, the new mortgage rules prohibit low and no documentation mortgages.
For other less risky Jumbo Loans, some banks are requiring a lower down payment—15% vs. 20%. And better yet, some financial experts say lenders will likely follow that stream and lower them to 10%. The lender strategy is to attract more applicants to pick and choose from. This is a sign that they are loosening up their underwriting guidelines. On the other hand, there is talk that Private Mortgage Insurance will be reintroduced for these loans.
Banks keep most jumbo loans in house and prefer Adjustable Rate Mortgages, because of the potential income from the increased rates. However, with the tougher rules, lenders cannot just approve borrowers, based on the lower introductory rate. Usually though, these wealthy home buyers can afford the higher rate and it would not be a deal breaker anyway.
Because Lenders want to attract affluent buyers, most likely the rates will remain low in 2014, at least for the ARM loans, as the fixed rate ones are expected to rise. But do not wait until 2015, as rates are expected to rise further. With our Government Treasury Department expected to ask for a higher price from its’ investors, higher rates for borrowers will ensue.