How to refinance a jumbo loan

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Ask a Lender
November 7, 2017 | Updated December 28, 2017


Key Points

Typical jumbo refinance requirements

  • A credit score of 720 or higher
  • At least 20 percent equity in the home
  • Debt-to-income ratio of no more than 45 percent
  • Cash reserves of at least 10 percent of the loan amount

If you have paid down a significant portion of your jumbo mortgage, seen your home appreciate in value or improved your credit score, you might be able to save money through a jumbo refinance.

While a jumbo loan can be refinanced the challenge for borrowers often lies in qualifying for the jumbo refinance.

What is considered a jumbo mortgage?

The U.S. Federal Housing Finance Agency sets the nationwide loan limits for conforming mortgages — that is, a mortgage that can be sold to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. For 2018, in most U.S. counties, a home loan of more than $453,100 is considered a jumbo mortgage, but the limit can reach up to $679,650 in certain high-cost localities.

As nonconforming loans, jumbo mortgages are often kept in a lender’s portfolio over the course of the loan. As such, not all lenders offer jumbo loan products, and those that do have strict eligibility requirements for borrowers seeking a jumbo mortgage or refinance.

How do I refinance a jumbo loan?

The process of refinancing a jumbo loan is essentially the same as that of a conventional mortgage. Your new jumbo loan pays off your existing mortgage, and starts the loan term over again with new loan conditions.

As jumbo mortgages are larger and inherently riskier, it can be hard to get a jumbo loan or refinance if you do not have a rock-solid financial profile, such as:

  • A credit score of 720 or higher
  • At least 20 percent equity in the home
  • Debt-to-income ratio of no more than 45 percent
  • Cash reserves of at least 10 percent of the loan amount

While it is always wise to compare lenders, it especially pays to compare jumbo loan providers. Lenders have highly variable risk appetites for nonconforming loans — both in terms of loan eligibility and interest rates. Given the larger size of jumbo mortgages, even slight drop in interest rates can make refinancing cost-effective in the long run.

Jumbo refinance rates are not necessarily higher than a conventional refinance, particularly as more private investors are purchasing jumbo loans from lending companies. Some lenders even allow for a lower qualifying credit score or debt-to-income ratio, but borrowers will pay for the relaxed standards with a higher rate.

Should I refinance a jumbo loan?

A jumbo refinance can achieve several different aims, such as reducing the loan term, consolidating two mortgages, cashing out home equity, reducing monthly payments, or moving from an adjustable-rate to fixed-rate mortgage or vice-versa.

Your objective in refinancing coupled with your financial picture will determine whether — and what kind of — a jumbo refinance makes sense. For example, if you intend to move out of your home within a few years, an adjustable-rate mortgage with an initial low-interest period could save you more money than a fixed-rate loan; or if you aim to lower monthly payments, you can extend the term of your mortgage or opt for an interest-only jumbo loan. There are even lenders — albeit few — that work with borrowers who want to refinance an underwater jumbo loan, if for example, your home’s value dropped and you owe more than it’s worth.

Compare the cost of the refinance, including fees and closing costs, and consider to how long you plan to live in the home. Identifying the break-even point — in years — when your interest savings outweigh the refinance costs can help you make a decision. 

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