Avoid High Jumbo Loan Rates with a Second Mortgage

To keep up with inflation, the government adjusts the ceiling for Jumbo Loans each year, based on the movement of prices within the housing market. Each time they raise the bar, the definition of a Jumbo Loan changes, and you're allowed to borrow a higher amount with a conventional type of loan.

If you plan to borrow in 2006, you're in luck. The limit was raised for this year and is now $417,000. That's a whopping 16 percent higher than last year, and almost $100,000 more than it was just a few years ago.

If you use a Jumbo Loan and borrow $450,000, for example, you'll likely pay $100 to $150 more per month than with a conventional loan, because of the higher rate of interest. During the life of a 30-year loan, that higher interest could cost you an additional $40,000. To lower the amount of your mortgage so that it still meets the guidelines for conventional loans, you may want to consider splitting it into two parts. That means, with regard to this example, you could borrow $416,000 with a conventional loan at a lower interest rate and then take out a second mortgage for the remaining balance of $34,000.

Before you borrow an amount above the prevailing conventional loan amount, talk to lenders about the possibility of using a second loan in tandem with a first as a way to minimize the impact of higher interest rates. You might discover that you can save a little money each month, and a considerable amount of money during the next two or three decades.