When Purchasing Chicago Luxury Real Estate, Consider a Floating Rate For An Adjustable Loan
Adjustable-rate loans were once seen as an enemy in real estate. For some, these loans were a risky financing option, since they came with an eventual jump in your interest rate that brought a higher—sometimes much higher—payment that some borrowers weren’t prepared for.
Also called “floating rate” loans, these are mortgages that offer a fixed rate for an initial period of time, then the rate adjusts based on a benchmark interest-rate index, plus a margin. You can see how that could be an issue for buyers who weren’t prepared for the rate switch, but adjustable-rate mortgages are still a viable option for high-end buyers. Loans over $417,000 in Chicago are considered “jumbo loans,” and jumbo loans with an adjustable rate can be a great choice for qualified borrowers, thanks to lower rates and great terms that are available now. Jumbo Loans an Attractive Option for Luxury Real Estate in Chicago
The current rate for jumbo loans has become a major selling point for luxury real estate buyers, even for those who have the cash on hand. Because lending standards are still tight, borrowers are low-risk clients for banks to have on their books, and are wooing them with jumbo loan rates even lower than conventional loans. In fact, buyers who took out an adjustable-rate loan several years ago and are reaching the end of their fixed rate and finding a welcome surprise: an even lower rate (and payment) than they started with.
Rates are expected to stay low for the next year, thanks to a modestly growing economy. So for those considering purchasing luxury real estate in Chicago, you may want to consider a jumbo loan over buying with cash.
Today’s low rates mean jumbo borrowers who choose a floating rate could get an especially good deal. Buyers can get a fixed rate for their jumbo loan now and save their cash for other investments. When the fixed period is up, those buyers have options: If it’s anything like today’s market, they may decide to keep that loan if the rate is lower. Or they might opt to refinance into another adjustable-rate loan and avoid rate increases for several more years.
If you’re thinking about refinancing to take advantage of the current low rates, the Wall St. Journal highlights two important considerations:
Watch the rate jump: If you’re stepping up from a lower floating loan to a higher fixed rate, the interest rate difference shouldn’t be more than a half percent higher than the current rate.
If you refinancing into a lower interest rate loan, the rate should be at least 1 percent lower than your current rate. Otherwise, it’s hardly worth it to refinance once you factor in origination costs, fees and appraisals.
If you’re considering a Chicago home purchase, I would be happy to talk about your options for financing and looking at taking advantage of low rates on jumbo loans. To discuses your situation, contact me at (312) 498-5080 or email me at [email protected]