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When considering the purchase of a luxury home, it is important to consult your financial advisor to see if it is more advantageous for you to pay cash for the property or to secure a mortgage. If it is in your best interests to secure a mortgage, you should work with a lender who is an expert in financing luxury homes. This lender would be able to discuss the benefits of jumbo financing versus originating two loans, also referred to as "piggyback" financing.
Jumbo financing rates are constantly in flux, averaging approximately a quarter of a percent above conforming rates. Historically, there have been instances where the jumbo rate was actually less than the conforming rate. When this occurs, the luxury homebuyer can save a lot of money.
Should this prove not to be the case, you may wish to consider "piggyback" financing. This enables the borrower to secure a first mortgage at the lower, conforming rate and loan limitation. The second loan will be either a Home Equity Line of Credit (HELOC) or a fixed term second mortgage. By splitting the purchase into two loans, you can lower your monthly payments. This also has the advantage of avoiding Private Mortgage Insurance (PMI). PMI is necessary anytime a homebuyer puts less than 20% down, unless they are doing a "piggyback" loan.
Remember to discuss your options with your tax advisor.
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