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September 16, 2014

Mortgage Rates: Middle Class Pays as Much as Wealthy

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Mortgage Rates: Middle Class Pays as Much as Wealthy

For the past three decades, the middle class has enjoyed lower mortgage rates, but now that’s changing, the Associated Press reports. Middle class households are now paying the same rates — or even higher, in some cases — as the wealthy and those who are getting “jumbo” mortgages.

The rates on the 30-year fixed conventional mortgage are averaging 4.48 percent, while “jumbo” mortgages — loans for more than $417,000 in most of the nation — are averaging 4.47 percent, according to Bankrate.com. At Wells Fargo, the nation’s largest mortgage lender, jumbo loans start at 4.25 percent, about 0.25 points lower than a conventional mortgage.

In the past, conventional mortgage rates would be 0.2 to 0.3 points below rates on jumbo mortgages.

But in some cases, lenders have been viewing jumbo borrowers as safer bets than conventional borrowers, who are now faced with tighter lending rules, larger down-payment requirements, and a shortage of houses for sale.

"Jumbo borrowers represent the holy grail of what financial institutions are pursuing: that much-desired, mass affluent consumer," Greg McBride, a senior analyst at Bankrate, told the AP.

Some lenders say they’re using mortgage rates to lure more high-net-worth clients and secure additional business from them in managing their investments. Also, “jumbo” borrowers tend to be in more stable neighborhoods with strong employment and stable home prices, like New York City, Boston, and sections of California, says Matt Vernon, who leads consumer mortgage lending at Bank of America. During the first three months of this year, 37 percent of the money Bank of America loaned on mortgages went to jumbo mortgages, compared to 22 percent last year.

Source: “A Fading Middle-Class Perk: Lower Mortgage Rates,” The Associated Press (April 25, 2014)

Read more:

Lower Down-Payment Requirements for Jumbo Loans
Jumbo Mortgages Get Cheaper Than Other Mortgages
Are Jumbo Loans Easier to Get?