We receive quite a few questions about interest-only mortgage loans in New Jersey, and in particular jumbo mortgage loans with an interest-only payment structure. So we thought it would be helpful to publish and explain this topic. Here’s what you should know about interest-only jumbo mortgage loans in New Jersey.
Interest-Only Jumbo Loans: How it All Works
Interest-only home loans can be either conforming or jumbo. These terms relate to the size of the mortgage in relation to pre-established limits or “caps.” This will all make more sense if we cover some basic terminology.
Interest-only mortgage: As the name suggests, an interest-only mortgage loan is one where the borrower pays only interest for a specific period of time. During this time, the principal balance remains the same. While these products can vary in their structure, most have an interest-only period lasting from five to ten years. After that, the borrower would begin to make payments toward the principal as well as the interest. So the monthly payments would increase in size.
Jumbo mortgage loan: A jumbo or “non-conforming” home loan is one that exceeds the conforming limits set by the Federal Housing Finance Agency. A conforming loan is one that adheres to these limits and can therefore be sold to Fannie Mae and Freddie Mac. A jumbo loan exceeds these limits and generally cannot be sold to Fannie or Freddie. Loan limits vary by county because they are based on median home prices. In New Jersey, the conforming limits range from $424,100 to $636,150.
ARM loan: An adjustable-rate mortgage (ARM) loan has an interest rate that can change or “adjust” over time. These days, most adjustable-rate mortgage products in New Jersey start off with a fixed rate of interest for a certain period of time. After that initial stage, the rate can change periodically with market conditions, typically once per year. Generally speaking, ARM loans start off with a lower interest rate than their fixed counterparts.
In New Jersey, interest-only jumbo loan options are somewhat limited. It’s a fairly specific niche that serves a relatively small percentage of borrowers. But there are some options out there, and we can help you explore them.
Some borrowers who start out seeking an interest-only jumbo ARM loan in New Jersey end up using a regular jumbo ARM (paying both interest and principal from the start). It really comes down to your financing priorities, as well as your monthly budget.
When Does This Financing Strategy Make Sense?
There are several reasons why a person might want to use an interest-only jumbo mortgage loan in New Jersey. Many people pursue this strategy because they expect their income to rise in the future, and they want to purchase a higher-priced home in the present. The interest-only payment structure makes the payments more affordable during the first few years.
Interest-only jumbo ARM loans are popular with certain borrowers because they can lower the monthly mortgage payment during the first few years. For some people, this is a higher priority than building equity in the home.
Additionally, a New Jersey interest-only mortgage product could allow you to divert income to other sources, such as investments. Some borrowers choose this financing option so that they can put more money toward a college tuition, retirement, etc.
Let’s talk: The point is you have a lot of options when it comes to choosing a mortgage loan in New Jersey. That’s why it is so important to speak to a knowledgeable loan officer who can explain your options. And that’s where we come in! Please contact us with any questions you have about interest-only loans, jumbo mortgages, or any other financing-related topic.