Investment properties on the higher end of the scale that require jumbo financing, loan amounts above $417,000 as established by Fannie and Freddie, have been on quite a ride as of late and has received a helping hand as it relates to financing costs. As you read here, jumbo rates are actually lower in the current lending environment compared to conforming mortgage rates.

That’s more than just topsy-turvy, it’s something that most loan officers today will tell you they’ve never witnessed the event.

For example, a borrower with a $700,000 jumbo loan amount might find a 30 year fixed rate right around 4.125 percent while a conforming loan of $417,000 will have a 4.25 percent rate. That doesn’t seem like a lot at first glance but when it concerns jumbo loans, the difference in monthly payment is more than noticeable. But there may be another jumbo product that’s even better, especially for investors who plan on buying and selling within a shorter time frame, say five to seven years. Enter the 7/1 jumbo hybrid.

This loan is fixed for seven years and compared to a jumbo 30 year fixed at 4.125 the 7/1 hybrid is a full percentage lower than its fixed rate cousin. Yes, the hybrid will turn into an adjustable rate mortgage than can change every year but not after seven years have passed at the lower, 3.125 percent rate. What’s the difference between the two rates on a $750,000 mortgage for instance?

  • 30 year fixed jumbo        4.125%                  $3,634/mo.
  • 7/1 hybrid jumbo            3.125%                  $3,212/mo.

That’s a monthly savings of $422 per month and over the course of seven years the total amount of interest saved is $35,448. That’s how much additional monthly cash flow you’ll enjoy over the course of the first seven years.

If you’re in the high end and keeping a rental property for the long term, the 30 year fixed rate is your choice. But if your strategy means buying and selling within a specific window, take a good hard look at the hybrid model.