Refinance a Jumbo to a Conventional Mortgage

Written by
David Mully
Read Time: 5 minutes

Good news for Jumbo mortgage holders! If you have a current mortgage balance under $647,200 most likely you have a higher rate than necessary. This is an increase of $98,950 from $548,250 in 2021. For example, if you have a current Jumbo mortgage with a balance of say $530,000 you can now potentially qualify for a better conforming loan interest rate.

FAQ: You can potentially save between 0.25% to 1% with a mortgage refinance rate if you now fall into a conforming loan limit range.

Examples of savings on a lower rate

Many consumers think you need to drop the interest rate more than 0.75% to make it worth it. But of course, this is relative to the size of the loan amount. Factoring in closing costs, is it still worth it to refinance from a jumbo loan to a conforming loan limit if you are paying costs to do it?

  • On a $540,000 home loan amount at 4% for a 30 yr. term equals a monthly principal and interest (P & I) payment of $2578.04. If you were able to lower your rate to 3.5% for a 30 yr. fixed rate your P & I monthly payment would be $2424.84 (a diff of $153.20 savings per month).

You may even get your lender to do a zero closing cost rate, which is usually slightly higher, making the monthly savings more desirable. You do need to ask the lender if the new refinance fee mandated by the Federal Housing Finance Agency (FHFA) beginning Dec 1, 2020 will be applicable or not.

FAQ: Even a 0.25% drop in rate could be a significant savings and be worth it. Have lenders provide a Loan Estimate so you can evaluate the total costs and your potential savings.

Home value appreciation – more equity

Chris Hatton, a 20 yr. Mortgage Loan Officer with PNC Bank says “Clients have built up quite a bit of equity in their homes in recent years so refinancing and home equity loans have been more popular than ever on ways to tap into their equity for larger home renovations and improvements while rates are at record lows.”

Your current home value may be higher than you think these days. It is all connected to what refinance programs and rates you can secure. When you first purchased the home, you may have not had the options you potentially have in today’s market.

Perhaps you were at a 90% LTV before, and now with home value increases are at 80% LTV. This could mean a difference in 0.25% to 0.50% in a mortgage rate. Obviously, a huge potential savings in monthly P & I payments when you’re talking loan amounts above the $510,000 range!

FAQ: Check with a Realtor or go online to get a feel on what your property may be worth currently. Then check our Refinance Break-Even Calculator.

Cash out - debt consolidation

Many of us are impacted financially by COVID-19. This new higher conforming home loan limit can be a saving grace for many. Saving a few hundred dollars or more per month could be what helps get you through a rough time.

  • Even shortening a loan term to a 15 yr. fixed mortgage because of a better rate, may keep your monthly payment the same but chop off years of your current loan term. Whatever your goals are, this could be what you need to get you through a tough time.

Lenders can be different on their guidelines on what offerings they are willing to propose. The most efficient way to know when shopping for mortgage programs during these time’s, is to have the basic facts ready:

  • Home value estimate, credit score estimate, loan balance, current interest rate, current loan servicer, employment information and current debt load.

Cash out with a lower rate may keep your monthly payment the same as what you are paying currently. Even with a higher loan amount.

  • Loan consolidation options

The simplest way to consolidate your debts is to simply take out a new home loan from a lender and use that to pay off the various bills you may have. You're then left with one monthly bill to pay rather than several. Many lenders specifically offer loans for this purpose. This approach requires that you have fairly good credit - if your FICO credit score is in the mid-600s or lower, you may have trouble getting such a loan from a bank or credit union.

FAQ: Is a Cash-Out Refinance a Good Idea? Refinancing to a lower interest rate while tapping the equity in your home might be a smart move.

Finding the right lender

This is so important to find the right lender for your specific needs.

Since you most likely are on a Jumbo mortgage currently and are reading this, you most likely have a good grasp of how the different home loan lenders vary. Banks, mortgage brokers, mortgage bankers and credit unions can all vary with interest rates, closing costs and lending guidelines.

Make sure you obtain a Loan Estimate (LE) from every lender you are shopping. And just as important, disclose your personal financial situation and current mortgage information so you can get the most accurate quote before you make a final decision.

FAQ: More than just selecting the right lender, make sure you are working with a seasoned mortgage loan officer that knows what they are doing. Like any profession, the better quality person you deal with the smoother the process you will experience. And yes, savings can depend on how competent your loan officer is.

Check rates from home loan lenders: Home loan lender rates

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