Congress makes ‘jumbo’ mortgages easier

Should you refinance now?

Mortgages are often divided into two types, “conforming” and “jumbo.” For some time, a “conforming” mortgage has been any loan up to $417,000, and a “jumbo” mortgage has been any loan over that amount. The reason is that $417,000 was the largest loan that could be repurchased by Fannie Mae and Freddie Mac, the two quasi-governmental mortgage-buying agencies. Because lenders could not re-sell a loan over $417,000 to these agencies, they often charged a higher interest rate for them.

To help borrowers, Congress recently raised the “jumbo” amount from $417,000. The new limit is $417,000 or 125% of the median price for houses in the geographic region, as determined by HUD, up to a limit of $729,750.

This new limit will be in effect until the end of 2008, although many people expect that Congress will extend it further. This should make it easier to take out or refinance a large mortgage.

In the past, many people avoided jumbo mortgages by splitting their loan in two: They took out a conforming mortgage and a home equity line of credit to finance the difference. But you might want to look carefully at whether this is still the best bet now that rates for loans over $417,000 could be coming down. Some people might be better off now consolidating their mortgage and their credit line into a single loan.

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