Can you refinance a jumbo loan?
Yes, you can refinance a jumbo loan. And there are plenty of reasons you might want to do so.
You can refinance your jumbo loan to switch from an adjustable-rate mortgage to a fixed-rate loan, to cash out home equity, or to lower your rate and monthly payment. You might even be able to refinance out of a jumbo loan and into a cheaper conforming mortgage.
If any of those applies to you, here’s what you should know.
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What is considered a jumbo refinance?
A jumbo loan is a mortgage that exceeds conforming loan limits imposed by the Federal Housing Finance Agency (FHFA). If you’re refinancing and your new loan amount is above the limit ($ in most areas), then you’ll need a jumbo refinance.
There are two situations where you might need a jumbo loan refinance:
- If your existing loan amount is already above conforming loan limits
- If you’re cashing out home equity and the new, larger loan amount pushes you into jumbo loan territory
What’s considered a jumbo refinance loan can vary depending on where you live. In most counties, jumbo loans start at $ and above for a single-family home. But the thresholds are higher in expensive counties and for multifamily homes.
If you were buying in an area with exceptionally high median home prices (or in Alaska, Hawaii, Guam, and the U.S. Virgin Islands), jumbo loans start as high as $ for a single-family home. There’s a sliding scale for areas with high but not sky-high home prices.
By the way, VA loan limits were eliminated in 2022. So there’s no true ‘VA jumbo loan.’ However, there are special rules regarding high-limit VA loans which you’ll want to be aware of.
Jumbo loan refinance rates
Jumbo loan refinance rates are typically similar to those for purchases and are usually higher than those for conventional mortgages. Often, they’re 0.25 to 1 percentage point higher.
So, if you qualify for a rate of 4% on a conventional refinance, you might pay between 4.25% and 5% for a jumbo loan refi.
Occasionally that relationship can invert, resulting in jumbo loan rates that are lower than conventional rates. This happened in early 2022 when mortgage rates were rapidly rising.
However, waiting on lower interest rates is generally not recommended — especially in an environment when rates are rising and expected to go higher over time. In that case, we’d suggest getting your application in as quickly as possible.
As with all mortgages and large credit applications, your interest rate and overall deal will depend on your creditworthiness, existing debt burden, LTV, and the consistency of your income.
Jumbo loan refinance options
There are four main reasons why borrowers want to refinance a jumbo loan. These include:
- Rate and term refinance: For a lower rate and monthly payment
- Cash-out refinance: To withdraw home equity
- ARM refinance: To switch from an adjustable-rate loan to a safer, fixed-rate loan
- Conventional refinance: To switch from a jumbo loan to a conforming loan
Here’s a little more detail about each strategy.
1. Rate-and-term jumbo loan refinance
Refinancing into a new jumbo loan with a lower interest rate can help lower your monthly payments and save you thousands over the life of your loan. This is the most common reason to refinance a mortgage.
Of course, when interest rates are rising, fewer homeowners have the opportunity to refinance into a lower rate.
In that case, there may be another way to save money in the long run: by refinancing into a shorter-term mortgage.
Shorter-term loans (like a 15-year fixed-rate mortgage) typically have lower interest rates than 30-year mortgages. And, since you’re paying off the mortgage in half the time, you’ll pay a lot less interest overall.
The downside? Since you’re cutting the repayment time in half, each monthly payment is a lot larger. And on a jumbo loan, that bigger payment might be unaffordable.
If you’re considering a jumbo loan refinance, talk to a loan officer about your options to see if one of these strategies can help save you money.
2. Jumbo cash-out refinance
If you need a significant injection of money, you could use a cash-out refinance to access some of the equity you have in your home.
The great thing about cash-out refinancing is that it can help you access a large sum of cash at an ultra-low rate (at least, compared to credit cards and personal loans). On the downside, though, cash-out refinancing resets your mortgage term and changes the rate on your entire loan amount. That might not be good if interest rates have risen since you originally got the loan.
If your borrowing needs are more modest, check out a home equity loan or home equity line of credit (HELOC). The rates will probably be a bit higher, but the closing costs should be lower and you don’t have to refinance your entire mortgage balance.
You can use our refinance calculator to help model your options.
3. Adjustable-rate jumbo loan refinance
For more than a decade, from 2010 to 2022, the Federal Reserve’s fed funds rate remained at or close to zero. And that’s important because adjustable-rate mortgages (ARMs) are closely tied to that rate.
After all those years, it became easy to forget that ARM rates rise when the fed funds rate does. But, when this was written in Mar. 2022, the Fed was planning multiple rate hikes throughout the rest of that year and into the next. So people with ARMs faced higher — perhaps significantly higher — monthly payments.
If, by the time you read this, you think you’ll face uncomfortably higher monthly payments, you might want to refinance your jumbo ARM into a fixed-rate jumbo mortgage. This could help you lock in a stable rate and predictable monthly payment for the rest of your loan term.
4. Refinance out of a jumbo loan
There are a couple of scenarios where you might be able to refinance out of a jumbo loan and into a (potentially cheaper) conforming mortgage.
- The FHFA increases its loan limits each year when home prices are rising. Even if you got your jumbo loan quite recently, it might be below Fannie Mae and Freddie Mac’s new loan caps
- As you pay your mortgage each month, your loan balance goes down. After a time, the balance will be reduced enough to fall within conforming loan limits, eliminating the need for a jumbo loan
Bottom line, if your current mortgage balance is below the FHFA’s current loan limits, you can refinance to a conventional loan. And the same applies if you put in enough cash to pull your balance below that cap.
Why would you do that? Well, you’ll typically get a lower mortgage rate with a conventional loan, though not always. And it’s usually easier to qualify for a conventional loan than a jumbo loan. We’re getting onto those qualifying details next.
For more information, see: Jumbo vs. conventional loans: Which is better?
Requirements to refinance a jumbo loan
As we said earlier, jumbo loans are non-QM loans, meaning nobody’s setting any rules or parameters except your lender. So there’s no one-size-fits-all list of qualifying criteria.
The following are common requirements for a jumbo loan, though these can and will vary by mortgage lender:
- Credit score: 700-720
- Debt-to income ratio: Negotiable depending on cash reserves. But some lenders insist on a 45% DTI
- Retained equity: Usually between 10% and 20% of the home’s value, meaning a maximum LTV of 80% or 90%
- Cash reserves: Negotiable. But some lenders want to see you have up to a year’s mortgage payments in cash or easily liquifiable assets
- Closing costs: Typically, between 3% and 6% of the loan’s value, which is a little higher than for conventional loans
Those are generally similar to the requirements for a jumbo loan when you’re purchasing a home. But they’re tougher than the equivalents for a conventional mortgage.
How to refinance a jumbo loan
There’s no special secret when you refinance a jumbo loan. The refinance process is very similar to that of any other mortgage.
1. Get preapproved for a jumbo refi
You’ll need a certain amount of home equity to qualify for a jumbo loan refinance.
Most lenders still require you to leave at least 20% of your home equity untouched when you do a cash-out refinance. But it’s often a lot less for a no-cash-out refinance: maybe 10% or 15% and possibly (though rarely) as low as 5%.
Of course, the more equity you retain, the lower your mortgage rate is likely to be.
To calculate home equity on your own, estimate your home’s value either by looking at recent sales prices of similar homes nearby or by talking to a real estate agent. Then divide your current mortgage balance by that value to find your loan-to-value ratio (LTV).
What might be simpler, though, is to get preapproved by a lender who can take a look at your property and finances and then tell you whether you’re likely to qualify for a jumbo refinance.
2. Prepare your paperwork
If you want to refinance quickly, it’s a good idea to gather all the paperwork a lender might require before you apply. And it may be a lot, especially if you want a really big loan.
We’ve put together a checklist of all the documents you’ll need to refinance. For more information, see: Mortgage refinance checklist: Everything you need to refinance your home.
Being able to quickly respond to a lender’s request for documentation puts your application on the fast track. Just don’t be surprised if it asks for even more than we’ve listed. Jumbo loans are considered higher-risk for lenders, and they’ll scrutinize your application more closely as a result.
3. Comparison shop for your new loan
Once you’ve got a good idea of your circumstances and have your paperwork in order, your next step is to comparison shop. Different lenders will offer you different refinance rates and closing costs.
Keep in mind that jumbo loans are non-conforming ('non-QM’) mortgage loans, meaning they’re not centrally regulated. Because of that, each lender gets to set its own lending rules. And the requirements and interest rates for a jumbo refinance can vary a lot from one lender to the next.
By all means, try your bank and existing lender. But also get quotes from multiple other lenders. You could save yourself many thousands by shopping around for your loan.