Jumbo mortgages are facing higher rates and getting harder to obtain. What’s a luxury-home buyer to do? Timothy Speiss, a partner at wealth management firm Eisner LLP, has been advising some of his high net-worth clients to take out conforming mortgages and put more money down. “When you look at the rates right now, there’s a significant difference,” he says. For instance, on a $1 million home, a buyer can take out a 30-year fixed $417,000 loan at 6% and put down the other $583,000—instead of paying 7.375% on a bigger mortgage.
If you can afford it, putting more cash down may be a better alternative to putting that cash in stock investments considering that the stock market is rocky and many U.S. real estate markets may now have bargain prices. “This is new but not unprecedented,” Speiss says, noting the prevalence of this practice in the late ‘70s and early ‘80s. “This is a cycle and this too will revert itself.”
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.