Balloons (Jumbo) Loans
5/25 or 7/23; Rate is fixed for first 5 years or 7 years. There is a
conditional refinance (approximate cost $275) at the end of the initial 5 or 7
year period.
Variations on these loans
Rates can be bought up or down. Buying the rate down can be permanent or
temporary.
A permanent buy-down for a fixed rate mortgage usually costs about 0.5
discount points for each 0.125% decrease in rate.
A temporary buy-down usually means a 2-1 buy-down for a fixed rate
mortgage.
Temporary buy-downs are not available for ARMs. The rate for the first year is
2% lower, and 1% lower for the second year. For example, if the interest rate on
a 30-yr fixed rate is 8% and 0.0 discount points, then a 2-1 buy-down could give the
following:
year 1 year 2 years 3 - 30
5% 6% 7%
cost: 2.75 discount points (approximately).
Buying the rate up will reduce the closing costs. The formulas are not
linear. For each 0.125% increase in rate, about 0.375% in discount points can
be contributed to the borrower in order to lower the closing costs. If the rate
is pushed high enough, this can result in a loan with no closing costs.
