What’s driving the growing gap between jumbo and conforming rates? “There’s only conjecture.”
It sounds like an oxymoron, but it’s true: Things are cheaper when you’re rich (h/t Money with Katie for that phrase.) And that’s reflected in today’s mortgage rates.
All mortgage rates, regardless of term or whether they’re fixed or ARM, are going up. Way up. But rates on 30-year fixed jumbo mortgages—generally, home loans with a starting balance of $647,200+—are rising more slowly than traditional, conforming mortgages. Plus, jumbo rates are lower than conforming rates, which could mean that putting less money down = paying less interest each month, NerdWallet Home and Mortgage Expert Holden Lewis told me.
“If you can put less down and get a lower interest rate, maybe it does make sense, especially if you can put that difference to use,” he said. “Keep in mind that your monthly principal and interest are going to be higher, because you’re borrowing more.”
As of Tuesday, the average U.S. 30-year fixed jumbo mortgage rate was 5.396%, while the comparable conforming mortgage rate sat at 6.007%. That 0.611 percentage-point gap reflects nearly the largest delta seen since at least 2015, when Optimal Blue started tracking jumbo rates (data here). I say nearly because the peak came on June 14, when the gap was 0.646 percentage point.
For most of 2020, conforming mortgage rates held above jumbo rates, which makes sense considering that conforming mortgages are backed by Fannie Mae and Freddie Mac, providing some risk relief that jumbos don’t enjoy. But the rates reversed in the second half of 2021, and the gap has been widening ever since.
What’s driving the growing gap? “There’s only conjecture,” Lewis said. Still, he offered that it could have something to do with the drying-up of refinancing applications.
Refis generally only make sense when you have a high credit score, and it could be that the only people still refinancing in a rising-interest-rate environment are people with high credit scores, which are more likely to be people seeking out jumbo loans. He said that they could qualify for more preferential rates than conforming loan-seekers, bringing down the jumbo rate average.
Bottom line: It sucks to buy a home right now because mortgage rates are nearly double where they were this time a year ago. But it sucks less if you’re buying an expensive house with a jumbo mortgage.