Piggyback for Conforming Refinance?

Q: Our house is valued at approximately $800,000. We purchased it for $780,000 five years ago. We currently owe $461,000 on the house. We have excellent credit and live in Arlington, VA close to DC and less than 1/4 mile walk to the metro. I attempted to re-finance about a year ago and was only offered 5.5% on $417,000 and was asked to pay 7.5% or 8.5% on the balance which they considered a home equity loan. Does that sound right? Should we be able to get a good rate for the full amount if we have excellent credit?

A: The mortgage lender probably wanted you to go the "piggyback" route -- two mortgages to make up the whole amount -- in order to make it easier to sell a big portion of your total loan to Fannie Mae or Freddie Mac. This can expose the largest portion of your debt to the lowest possible interest rate, rather than have the whole amount at (what would have been) a substantially higher interest rate. Market conditions have improved somewhat since last year, and you should be able to refinance that whole amount into a new private-market jumbo mortgage at perhaps 5.25% or so. However, since Fannie Mae can write loans up to $729,750 in your region, so be certain to ask (and keep shopping around) for what's called an "agency jumbo", which should be available at rates just a little above today's rock-bottom conforming pricing.

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