A Jumbo loan and an ARM loan are two different types of mortgage products. In the mortgage industry, several types of mortgages exist and these can be combined or separate. In this case, when you combine two mortgage products, you have the Jumbo ARM.
Types of Mortgages
Be aware of the different types of mortgages before preparing to purchase or refinance any property. The main types of mortgages are Conventional, ARM,and Jumbo. There are others, but these three are considered to be the standard. Become aware of the options available; in doing so, you will become a smarter consumer and segregate yourself from the potential of a financial crisis.
Conventional loans are the most basic of the mortgage loan process. These will be conforming loans, which means they fall within the Fannie Mae and Freddie Mac maximum lending guidelines. Generally, lending guidelines are not as complex with conventional loans. For example, lenders may require minimal documentation regarding income and assets, maximum loan-to-value ratios may reach 90 percent, and debt-to-income ratios may be allowed up to 55 percent in some cases. Of course, as with any mortgage, one's credit score will play an integral part in the approval process. In addition, the rates on these mortgages will remain fixed.
ARM loans are a bit more complex. An ARM, or adjustable rate mortgage, will have an adjusting rate, based on variables. ARM rates have the capacity to fluctuate over the lending period. ARM rates typically can provide lower monthly payments in the beginning of the mortgage, but lenders can see monthly payment increases skyrocket as the market bends. For this reason, there are usually interest rate caps that protect lenders from gigantic increases like this. Typically, ARM rates will be lower in the initial phases of the amortization period.
Jumbo loans are those that exceed the conventional conforming standards placed forth by Fannie Mae and Freddie Mac. Currently, lending guidelines allow up to $417,000 for borrowers looking to meet conforming loan limitations. Anything over this is considered non-conforming, or Jumbo. Ideally, lenders will require a larger down payment and higher credit due to the amount of risk involved in a larger mortgage amount. Additionally, the interest rate charged is generally higher than that of conventional or ARM loans; again, this is due to the risk associated.
Jumbo ARM loans are mortgage products that exceed the current Fannie Mae and Freddie Mac guidelines—currently $417,000—that also carry adjustable rates. An example might be a $650,000 mortgage based on a 5/1 ARM system. These types of mortgage products tend to carry higher rates, as introduced above. Most Jumbo products are found in regions with luxury housing, or along the coasts. While these products can be risky, both for lenders and borrowers, the flexibility they provide can be exactly what the consumer needs.