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Wealthy Americans Benefit From Jumbo Mortgages

Americans are finding it pays to go big when borrowing to buy a home.

Wells Fargo and JPMorgan Chase lead banks that are offering jumbo mortgages, those too big for government programs, at rates at or below taxpayer-backed loans.

On average, the extra cost of 30-year fixed jumbo loans reached a six-year low of 0.16 percentage point last month, according to data provider HSH.com. Bigger adjustable-rate mortgages with payments that can rise after five years ended last week 0.09 percentage point cheaper, the most since at least 1998.

While rates for conventional mortgages surged last month by the most in two decades, financing costs for million-dollar homes are becoming a relative bargain. Deposit-rich banks needing to make loans are suppressing rates to compete for wealthier customers as home prices soar in expensive areas from Manhattan to San Francisco.

“Lately, our jumbos are either in line with conforming or better,” said Karen Mayfield, the mortgage banking national sales manager at BNP Paribas’s San Francisco-based Bank of the West unit. “Slowly but surely, the gap has closed in the past six months, and it’s really become much more obvious in the market over the past 30 days.”

Jumbo mortgages are loans larger than those allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas. For Fannie Mae and Freddie Mac loans with the lowest costs for borrowers using 20 percent down payments, the limits range from $417,000 to $625,500.

Bigger loans are getting relatively cheaper because they’re mostly put on banks’ balance sheets instead of packaged into securities that get sold to investors, according to Paul Miller, an analyst with FBR Capital Markets in Arlington, Va., and former examiner with the Federal Reserve Bank of Philadelphia.

Banks are seeking those loans because “there’s just not enough economic growth out there to create the other lending opportunities needed to support all the capital at these banks,” he said in a telephone interview.

Mike and Kelly Guarascio, who are buying a four-bedroom house in Stratham, N.H., for $570,000, locked in a 4.25 percent rate last week with Wells Fargo on a 30-year fixed mortgage that was about an eighth of a percentage point cheaper than Fannie Mae and Freddie Mac loans.

Conventional fixed-rate borrowing costs soared to the highest since July 2011 .