Interest-Only Jumbo Loans

Why do intererst-only jumbo loans make sense  in today’s mortgage market? There are many reasons to use the interest-only feature on a jumbo loan, but first let’s look at the characteristics of the jumbo loan borrower.

The jumbo loan borrower has excellent credit scores and has demonstrated an ability to management debt in a very high manner. Next they have demonstrated a propensity to save. They have enough money to make the larger down-payment required on a jumbo loan and have enough in cash reserves also required to take out a jumbo mortgage.

Typically they are high wage earners. They are either successful business owners, physicians, attorneys, or upper management in companies. These higher-end wages allow them to qualify for the larger jumbo loan amounts while maintaining the debt to income ratios required for jumbo mortgages.

In essence they have the three “C”s required to obtain a jumbo loan: collateral/higher down-payment, cash/reserves, and credit/ability to repay the jumbo mortgage. Now that we have defined the jumbo loan borrower let’s look at why the interest-only feature on a jumbo loan makes sense in many instances.

With their high credit scores showing ability to manage debt they may not need a fully-amortizing jumbo loan to reduce principal with every payment, but may want to control the principle reduction themselves with the interest-only jumbo loan.

Since they already have been required to make a larger down-payment on a jumbo loan they may want to deploy their capital in other investments or ventures instead of paying down additional principal in their home with each payment.  The interest-only jumbo loan allows them to control the principal reduction on their home.

Since most borrowers of jumbo loans are high wage-earners and consequently are in higher-tax brackets they can use an interest-only jumbo loan to maximize their mortgage-interest deduction on their home.

In addition, many jumbo loan borrowers receive their compensation in commissions or bonuses. An interest-only jumbo loan having a lower monthly payment than a fully-amortizing jumbo loan allows them to manage monthly cash-flow.

Interest-only jumbo loans also work great when the hold time of the home will be five years or less since you really don’t pay-down that much principal with a fully-amortizing jumbo loan in that short of a time period.

In summation here are the key features for the use of interest-only jumbo loans:

1. Interest-only jumbo loans allow the jumbo loan borrower to control the principal reduction on their home.

2. Interest-only jumbo loans allow the jumbo loan borrower to use their capital for other investment and/or ventures

3. Interest-only jumbo loans allow the jumbo loan borrower to manage monthly cash-flow with lower monthly payments than fully-amortizing jumbo loans.

4. Interest-only jumbo loans allow the  jumbo loan borrower to maximize their mortgage-interest deduction on their home mortgage.

Next time you obtain a jumbo mortgage you may want to consider getting an interest-only jumbo loan!

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