Refinance jumbo loan: Requirements, pros & cons

Jumbo loans are, well, jumbo-sized. These loans offer larger loan amounts that require higher monthly payments.

This means refinancing a jumbo loan can amplify your monthly savings.

Even a small rate reduction can create noticeable savings each month.

What is a jumbo loan refinance?

A jumbo loan refinance pays off an existing jumbo loan and replaces the old loan with a new jumbo loan.

The new loan offers advantages the old loan can't provide. For example, most jumbo loan borrowers refinance to get a lower interest rate.

Jumbo loans, by definition are big. They exceed federal conforming loan limits. Lowering the interest rate can create big savings.

A jumbo loan refinance example

A homeowner with a $1.4 million jumbo loan balance refinances to shave 0.5 percent off their current interest rate.

The new loan payments come in $465 lower than the old payments. Over the life of the loan, this adds up to $167,000 in total interest savings.

How much could you save? Use this refinance calculator to find out.

How can I lower my jumbo loan's rate?

A new jumbo loan can offer a lower rate if:

• Market rates are lower: Global economic conditions affect average mortgage rates. If average rates are lower now than when you bought, you may qualify for a better rate.
• Personal finances are better: If your credit score has improved or you've paid off a lot of other debts, you may qualify for a lower rate.
• You have more home equity: Increasing home values, combined with a lower jumbo loan balance, may have increased your home equity. More equity can lead to a lower rate.
• You no longer need 'jumbo': If your loan balance has fallen below the conforming loan limit ($806,500 in most U.S. counties) you may qualify for a conventional loan that offers lower rates.

Borrowers who can combine two or more of the bullet points above can usually save the most.

Refinance jumbo loan requirements and process

Since jumbo loans are bigger and riskier for lenders, jumbo borrowers face stricter qualifying rules.

To open a new jumbo loan refi, lenders need to see:

• Higher credit scores: Most lenders require excellent credit scores, typically 680+ for 30-year fixed jumbo loans and 740+ for 15-year fixed or adjustable-rate mortgages. Investment property refinancing might need scores as high as 720.
• Lower debt-to-income ratios: DTI rules vary by lender and income amount. In general, borrowers with less outstanding debt can qualify for a better rate.
• Healthy cash reserves: Enough cash reserves to make the loan's monthly payment for 12 months eases lender anxiety.
• Loan-to-value ratio: A loan balance that's 80 percent or less of the home's value will be safer for the lender.

A previous bankruptcy or foreclosure will complicate jumbo loan approval. Most jumbo lenders require waiting seven to 10 years after a bankruptcy or a foreclosure.

Refinance process for jumbo loans

Before applying for a refinance pre-approval, gather these documents:

• Two years of tax returns with W-2 forms
• Recent pay stubs or proof of income
• Bank statements from the past 60 days
• Profit/loss statements for self-employed borrowers
• Proof of any additional income sources

You'll need these documents to get pre-approved.

Jumbo loans depend on manual underwriting, so they usually take longer than conventional or government-insured loans like FHA and VA mortgages.

....in as little as 3 minutes – no credit impact

Jumbo refinance closing costs

Jumbo loan closing costs, just like jumbo refi savings, tend to be higher than conventional loans costs.

Jumbo loans cost more to close because many fees get charged as a percentage of the loan amount, and jumbo loan amounts, by definition, are bigger than traditional loans.

For best results, a jumbo refi will save more than it costs.

A refinance calculator like this one lets you compare loan costs to loan savings.

Should you refinance your jumbo loan?

Homeowners should refinance jumbo loans when the new loan will save more than it costs or when the loan accomplishes another important goal.

Measuring costs against savings isn't always easy because the savings happen gradually, growing bigger with each monthly payment that's made.

These pros and cons can help you decide:

Pros of refinancing a jumbo loan

Lower interest rates: Even a small rate cut can make a big difference. For a $1.2 million loan, dropping your rate from 6% to 5% could save over $240,000 in total interest. Better's fast closing process helps secure these competitive rates without a big hassle.

Reduced monthly payments: Along with the long-term savings, a jumbo refi can create month to month savings. Some extra breathing room in your budget could relieve financial strain.

Access to home equity: A jumbo cash-out refinance pays off the current loan while also providing extra cash from equity. Homeowners can use the money for home improvements that increase home equity even more.

Loan structure flexibility: Switching from an adjustable-rate mortgage to a fixed-rate loan provides payment stability during volatile economic times. On the other hand, moving from a fixed rate loan to an ARM can lower payments in the short term.

Cons of refinancing a jumbo loan

Higher closing costs: Jumbo loan closing costs typically run 2 to 5% of your loan amount. For a $1.5 million mortgage, that's $30,000 to $75,000 in upfront expenses. These costs could take a few years to recoup through monthly savings.

Strict qualification requirements: Stricter jumbo loans requirements exclude people who have little in savings and a lot of other monthly debts. Lenders usually require higher credit scores than they require for a conventional refi.

Extended repayment timeline: Refinancing resets your loan term, potentially adding years to your mortgage unless you choose a shorter term. This could result in higher total interest despite securing a lower rate.

Rate trade-offs: A no-closing cost refinance might reduce upfront expenses but typically includes higher interest rates, diminishing long-term savings.

If your loan balance has decreased below current FHFA loan limits, you might qualify to refinance into a conventional loan with less stringent requirements and potentially lower costs.

....in as little as 3 minutes – no credit impact

Jumbo loan refinancing options: customized for you

Refinancing a jumbo loan isn't one-size-fits-all. Here are key ways to tailor a new jumbo mortgage to your goals:

Change your loan term

Shortening your loan term from 30 years to 15 years pays off the loan faster and lowers the total interest due over the life of the loan.

In exchange for these savings, expect higher monthly payments since the same amount of debt has to be repaid in a shorter time.

Use Better's refinance calculator to test scenarios, and be sure to include closing costs in your scenarios.

Secure a lower interest rate

When market interest rates go down, you may qualify for a lower interest rate. You can also get a lower rate if your personal finances have improved or if you've built lots of equity.

You might also consider:

— Switching from an adjustable-rate mortgage to a fixed-rate jumbo mortgage so your payments won't change with market rates.
— Moving to an adjustable-rate mortgage for temporary payment relief. This helps homeowners who plan to sell the home within a few years, before the rate adjusts
— Exploring interest-only payment options to reduce monthly costs temporarily

Lenders will check your credit score, debt-to-income ratio, and cash reserves when determining your rate offer. Review the latest jumbo loans requirements before starting your application.

Change to a conventional loan

If your jumbo loan balance drops below current FHFA loan limits, you might qualify to refinance into a conventional loan. A new conventional loan typically offers:

— More flexible qualification standards
— Potentially lower interest rates
— Reduced costs compared to jumbo loans

Feature	Jumbo Loan	Conventional Loan
Credit Score	Usually 680–740+	Often 620+
Documentation	Extensive	Standard
Processing Time	Longer	Faster
Loan Amount	Above FHFA limits	Below FHFA limits

Is a jumbo refinance right for you?

Whether you should refinance your jumbo loan depends on whether the new loan can save money or accomplish another goal that your current loan doesn't offer.

The first step to finding the right loan type? Getting a pre-approval. Better's pre-approval requires no hard credit check so it won't affect your credit score.

....in as little as 3 minutes – no credit impact