Mortgage Rates: Conventional Mortgage Rates, Jumbo Mortgage Rates and Adjustable Mortgage Rates

There are many different mortgage types available and many different mortgage terms available. Each mortgage type and term has a different mortgage rate at any given time. Available mortgages rates change with the direction of prevailing interest rates at the time.

There are conforming mortgages, mortgages that fall within the guidelines set by the FHFA. There are jumbo mortgages which are mortgage loans that are higher in dollar terms than the amount set by the FHFA. Here is a table of conforming mortgage loan limits set by the FHFA for one family homes up to four family homes.

Maximum Original Principal Balance for
Loans Closed in 2010*
Units Contiguous States, District of Columbia, and Puerto Rico Alaska, Guam, Hawaii, and the U.S. Virgin Islands
  General High-Cost* General High-Cost*

$417,000 $729,750 $625,500 $938,250

$533,850 $934,200 $800,775 $1,201,150

$645,300 $1,129,250 $967,950 $1,451,925

$801,950 $1,403,400 $1,202,925 $1,804,375

Chart source: Fannie Mae
A jumbo mortgage loan will always come with a higher mortgage interest rate than a conforming mortgage rate. One reason for this is that banks issuing jumbo mortgage loans can sell those mortgages to third party investors and those investors require a higher rate for the risk involved.

Conforming mortgage loans are bought by Fannie Mae or Freddie Mac which pretty much guarantees banks can sell those loans after they are made. This makes conforming mortgage rates lower.

The most common mortgage type is a 30 year mortgage. With a 30 year mortgage the mortgagee (borrower) pays back the mortgagor (lender) over a 30 year period. The borrower pays back the loan with interest.

The interest you pay on a home loan is called mortgage interest. The government subsidizes every homeowner by allowing homeowners to lower their federal tax liability by deducting the mortgage interest they pay on their loan.

There are also VA mortgage rates for veterans and FHA mortgage rates for people buying there first home. With these types of loans, the government allows you to only put a 3.00% down payment when buying a home. You have to be eligible for these programs.

The traditional down payment on a home loan is 20%. During the housing boom people were able to finance up to 100%, sometimes even higher. Those days are over and 20% is again the norm for a down payment.

The second most common type of mortgage is a 15 year mortgage. 15 year mortgage rates are usually lower than 3o year mortgage rates. Right now, you can find conforming 15 year mortgage rates for around 4.40%. Jumbo 15 year mortgage rates are around 5.00%.

Another popular type of mortgage is an adjustable mortgage. Adjustable mortgage rates “adjust” every year after the initial period has ended. There are 10/1, 7/1, 5/1, 3/1 and 1 year adjustable mortgage rates. For example, with a 5/1 ARM the mortgage rate will adjust every year after the first  5 years. The new mortgage rate will depend on where prevailing interest rates are at the time.
Author: Brian McKay
February 10th, 2010
Posted in: Mortgage Rates