Dennis' Mortgage Blog

With the spread between 30 year conforming and jumbo (non-conforming) fixed rates growing to almost 1.00% those looking at getting new mortgages above $417,000 (the Fannie Mae/Freddie Mac lending limit for single family properties) need to do some math to see if they benefit from avoiding a jumbo product.

This morning I had a client looking to purchase a $700,000 property with 10% down call. Before the current mortgage market created the historically large spread between the conforming and non-conforming fixed rates we would have done a simple 80-10-10 piggyback transaction: 80% of the value in a first trust deed, 10% of the value in a second trust deed and 10% in down payment.

Today the rates for this would be:

$560,000 1st at 7.125% (interest only)

$70,000 2^nd at 7.45% (30 yr fixed)

For a “blended” rate of 7.161%

Not today however, the math is bad for the client. Instead of the "traditional" piggyback we are doing a conforming-based piggyback mortgage. This will lower the client’s monthly payment by almost $200 per month and lower the blended rate.

Conforming Based Piggyback Today:

$417,000 1^st at 6.375% (interest only)

$213,000 2^nd at 7.45% (30 yr fixed)

Blended rate of 6.744%, a savings of 0.337%

To properly serve clients mortgage brokers and lenders need to consider many different options—this is where an experienced mortgage professional provides tremendous value. Examining different scenarios and options can save borrowers thousands of dollars in mortgage and interest payments; as you can see from the example it can be done without using adjustable rate or other non-fixed products.

If I can be of service to you or someone you know please contact me.

Dennis

 Tuesday, August 21, 2007