These days, many experts are still wondering about the potential recovery of the housing market, and some say lending restrictions remain too tight. However, a few major banks are making it easier for the most creditworthy and wealthy borrowers to obtain new mortgages.
Consumers who do lots of business with their banks or have large amounts of assets are now finding it far easier to obtain affordable mortgages, according to a report from MarketWatch. This is being done in an effort to find potential homebuyers who have a far greater likelihood of staying current on their home loans because it's clear they have the capability to afford their monthly payments.
These efforts to entice new, wealthier homebuyers come, perhaps not surprisingly, on what are known in the industry as "jumbo" loans, the report said. In general, they are defined as being mortgages worth more than $417,500, but in many cases, the larger the loans to a creditworthy borrower, the greater the savings they may be able to receive from a lender.
One of the first banks to begin discounting jumbo loans to potential borrowers with significant assets was Bank of America, the report said. That lender began giving consumers who had more than $250,000 in assets with the bank a discount of half a percentage point on their mortgage rate. Based on the latest numbers from the Mortgage Bankers Association, that means that the current average rate for a jumbo loan, 3.82 percent, would fall to 3.32 percent.
Similarly, Wells Fargo is slashing mortgage rates for some of its clients who are able to claim at least $1 million in assets, and that includes through both savings and brokerage accounts, the report said. Further, Chase Private Client, already a financial service for customers with between $500,000 and $5 million in assets, is cutting closing costs for those potential buyers.
How is this practice working?
In general, banks note the effort is paying off, the report said. They say the reason they're doing it is because they want to engender greater customer loyalty by giving borrowers deals others with less in assets simply do not have access to.
"Our overall jumbo loan business has increased, which we clearly attribute to the pricing incentives," Matt Vernon, a home loans sales executive at Bank of America, told the news site.
The reason for this, again, is that banks know these people pose relatively little risk when it comes to falling behind on payments, and dealing with fewer instances of delinquency and default can save them massive amounts of money both in the long- and short-term. They may also encourage these borrowers to make larger down payments on their home as a means of further reducing the costs they face over the life of the loan.
The potential savings
Cutting mortgage rates and other associated fees paid by the wealthier potential borrowers is something that can save them significant amounts of money, both at closing and over the 30-year life of the loan, the report said. For instance, cutting a 4.05 percent rate on a 30-year, $1.5 million fixed-rate mortgage, by even a quarter of a percentage point, to just 3.8 percent, a borrower can potentially save $77,500 over the loan period.
Of course, it's also important to note that these borrowers probably come in with high credit ratings because they were likely insulated from the fallout of the recent financial downturn, the report said.. Nonetheless, taking on a mortgage of this size will require a significant investment, particularly up front. For this reason, even wealthy borrowers will need to be aware that they have options when it comes to dealing with these payments.
Again, the more they give to their lender as a down payment, the less money they will actually need to pay over the life of the loan, potentially saving them thousands of dollars or more in interest charges, and even making them more likely to qualify, the report said. Further, once they know about the better deals available to them from one potential lender, it remains a good idea to try to shop around and ask other financial institutions about the potential deals they would offer to a wealthier consumer.
However, that's also good advice for borrowers of all stripes. If you're thinking about obtaining any type of new credit, you should make sure you can afford it and are in good credit standing. One way to determine this may be to check your credit report for any unfair markings that may be taking a negative toll on your credit score. Working with a credit repair law firm could help to clear up this issue.