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Jumbo Loan or Keep Cash

We are currently shopping for loans, we have two options: a jumbo loan where we keep more cash, but pay 15% more monthly payment with 4.0% rate .  Second option is we put more down payment (15% more), pay less monthly payment with 3.625%.  Both loans are 30-year.  This will be our primary home and we plan to stay at least 10 years (we will be renting out our current residence).  Which loan is better?
  • December 05 2012 - San Jose
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Answers (5)

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You mentioned that you only have two options, but I most certainly disagree. Although interest rates typically trend a bit higher with jumbo loans, there are plenty of lenders offering jumbo rates between 3.25%-3.625% with all closing costs covered. Your qualifying rate is quite obviously circumstantial. [content removed by Zillow due to spam.  Please refer to our Good Neighbor Policy for more details.]
  • December 05 2012
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Question 1) Do you have other available cash in case of an emergency?

Question2) Can you get a rate of return on that money that is greater than the interest rate minus any deductions? If you borrow at 4% and if your net effective rate is 3% and you can get a return on the money that is 3% or greater. Then I would put down the lesser amount.

However, for the best advice I would speak with a "competent" accountant and financial planner. Make sure they understand what ARBITRAGE is.

Ron Jensrud [Promotion removed by Zillow moderator. Please see our Good Neighbor Policy.]
  • December 06 2012
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Thanks for the response!
@Merino the house I am looking to buy is 925k-950k.
  • December 06 2012
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What is the purchase price that you are looking to buy? 
  • December 05 2012
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Hello and Thank you for posting your questions.

I am not sure which one is better.  I would guess that this may come down to personal beliefs.  In today's economy and housing market I am a big promoter of "Cash Preservation".  To be honest I am not expert and can not forecast if home values will dip again.  That is one of the main reasons I prefer to keep my cash.  I am not discouraging home ownership but my answer may be different if you were telling me that you were going to stay in that home until it was paid off.  Perhaps you should look around for an interest rate that is a little lower than 4.00% and then it will be the happy medium between both interest rates.

I hope this helps..

Chris Perez - Real Estate Finance - San Francisco, CA  

  • December 05 2012
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