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Take out a bigger mortgage, and pay less interest?

In a weird and unprecedented twist, “jumbo” mortgages – typically those above $417,000 – have carried a lower interest rate than standard mortgages in some recent cases.

A very large number of standard mortgages are purchased or backed by Fannie Mae and Freddie Mac. Those government-sponsored enterprises won’t touch a mortgage above a certain amount, which is $417,000 in most areas (but can go up to $625,000 in some high-priced markets). Any loan above that is considered a “jumbo” mortgage.

Typically, jumbo mortgages carry a higher interest rate. That’s because the lender can’t get Fannie or Freddie to buy or to guarantee the loan, so if anything goes wrong, the lender is completely on the hook.

But recently, for the first time ever in history, the average interest rate for 30-year fixed-rate jumbos was less than that for comparable smaller mortgages.

There are several reasons for this. One is that the U.S. recently forced Fannie and Freddie to increase the fees they charge to lenders, while the Federal Reserve suggested that it will slow down its purchases of Fannie’s and Freddie’s bonds, both of which have increased conventional-loan interest rates.

Meanwhile, many banks are flush with cash and eager to lend, and they want to attract well-heeled jumbo-loan borrowers because they can then try to sell them other banking products.

This “perfect storm” has resulted in an odd situation where certain buyers of luxury homes have actually been able to get a better interest rate by borrowing more money.

While jumbo rates likely won’t stay cheaper than conventional rates, the fact that the rates have been so close recently means that if you’ve shied away from a jumbo loan in the past, you might want to look again and do a careful comparison.

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