“It makes sense for them to get mortgages because rates are so low they’re getting more leverage out of their assets by investing the proceeds of the loan,” she said.
The loans are mostly larger than the maximum amount that can be backed by the government. Conforming loans are capped at $417,000 for most of the nation and $625,500 for high cost areas. Buyers of high-end homes often use jumbo, or private- label, mortgages that typically have higher standards, Michelini said.
Adjustable Mortgages
Wealthy buyers prefer adjustable-rate mortgages, or ARMs, that have initial fixed periods of five or seven years, Michelini said. ARM rates typically are at least a percentage point cheaper than fixed rates, and there is no reason to fear a payment spike when the loan adjusts, she said.
“If they get to the end of the fixed period and their rate goes higher, they can always pay off the loan,” Michelini said.
At the Starbucks in California’s Granite Bay, when conversations turn to real estate Moe has his own story to tell about snagging a $1.2 million bargain on his 5,000-square-foot mansion with a five bedrooms and a five-car garage. In 2007, as the economy was heading toward disaster, the newly constructed home went for $1.6 million.
“I always admired this house but quite honestly couldn’t afford it,” said Moe, president of Car West Auto Body, a string of collision-repair shops. “I decided to grab it while the price was low because I see the market starting to head up.”