"J-U-M-B-O that's a technical term... if you want a jumbo loan, your down payment has to be bonkers" -Sheng Wang

I thought I'd take a second to define some of the funny words used in mortgage.

The words I'm defining here are:

• ARM loans
• Jumbo loans
• Piggyback HELOCs
• Balloon loans
• Reverse mortgage

What is an ARM?

We'll start with ARM. This one is a little complex, but I'll give you an actual example. This is what an ARM's closing disclosure looks like.

The AIR table can be found on page 5 I believe.

It looks a little crazy right?

This one is called a 5/1 ARM. It is fixed for 5 years, then has the possibility of adjusting once for every 1 year.

There's a limit to how high or low it can adjust.

On the AIR table it shows what the limits are per adjustment. It's capped at 1%.

So years 1-5 are at 5.125%. The highest rate you could pay on the first adjustment would be 6.125%

You'd pay that for one year. Then it could adjust again. The most it could increase to by the next adjustment is 7.125%

And so on until 10.125%

It could also go down, all the way to 1.75%

How is the rate determined?

If you look at the AIR table again, it refers to the 1 Year Treasury Bond + 1.75%

You can find the 1 year here: https://www.cnbc.com/quotes/US1Y

Today 6/3/2025 the 1 year treasury is at 4.13%

So if this loan were just coming out of it's fixed period, looking to adjust, we would take the 4.13% + 1.75% = 5.88%

This loan's first adjustment would increase to 5.88% (Which is under the 1% adjustment cap rule, so it passes)

Why consider an ARM?

ARMs typically offer lower rates at lower buydown costs.

If you are having trouble qualifying, but have seller credits to buy down the interest rate, consider using an ARM. It will allow you to push your rate lower than the average.

If you have short-term plans for the house, then this could be a good low-rate option.

What to watch out for

After the financial crisis of 2008, the majority of consumers leaned toward the 30 year fixed product. In 2023 and 2024, ARMs made up less than 10% of US home loans.

I don't blame them.

My Grandmother grew up through the Great Depression.

She rarely spent money. We found cans in her food storage with dated labels from the 60s.

Crises change behavior.

A 30 year fixed loan is predictable. ARMs are less-so.

Just know what you could potentially be getting yourself into when signing up for an ARM (and a leg)

JUMBO LOANS

A jumbo loan is anything outside of the conventional conforming loan limits.

In 2025 the base loan limit for conventional loans is $806,500.00

In 2024 it was $766,500

In high cost of living areas, conventional loan limits can be higher. Orange County CA for example is at $1,209,750.00

San Joaquin County CA is at $806,500.00

If you needed a loan for $900,000.00 in San Joaquin County CA, you'd have to qualify for a Jumbo loan.

If you needed the same loan amount in Orange County CA, you'd be able to qualify for a Conventional loan. (based on county loan limits)

Jumbo loan rules

Jumbo loans have rules set by private investors rather than a publicly traded company like Fannie Mae.

No PMI.

Jumbo loans are known for not having private mortgage insurance. That's usually because you need 20% down payment anyway. But there are programs that allow a 10.1% down payment while still avoiding that PMI payment.

Down payment

I just mentioned this, but some jumbo programs allow between 10.1%-20% for a minimum down payment. The higher the down payment, the better the terms.

Reserves

It's common for Jumbo loans to ask for a higher reserve amount than other lending options. Reserves are assets available in case of loss of job or financial road bumps.

Appraisal

It's possible you may be required not just one appraisal, but two appraisals. They'd likely go off of the lower appraised value.

Interest Rates

The rates are generally higher than conventional.

Creative way to avoid the Jumbo

If you're looking to avoid a jumbo loan, here's an idea: split your loan into two loans.

Here's an example.

You have $204,000.00 available for a down payment. That's the absolute max you can do for it. No flexibility.

Pretend the purchase price is $1,020,000.00 the seller won't budge on price.

Your purchasing in an area where the conventional loan limit is $806,500.00

If you see where I'm going with this, your jumbo loan is the purchase price - down payment. Your loan amount would land at $816,000.00

That's $9,500 off from the Conventional loan limit.

But you can't scrape up the extra $9,500. Or you refuse to. I don't know. Anyway.

Here's a possible solution.

• 1st mortgage = Conventional loan at $806,500
• 2nd mortgage = piggyback HELOC at 9,500

THE PIGGYBACK HELOC

Here's a quick definition:

A second mortgage set up as a home equity line of credit (HELOC) that’s taken out at the same time as the first mortgage to avoid paying private mortgage insurance (PMI) or to keep the primary loan amount under conforming limits. Commonly structured as an 80/10/10 loan: 80% first mortgage, 10% HELOC, 10% down payment.

Why get one?

The terms on a conventional + piggyback HELOC might be more beneficial than a jumbo loan

The idea of structuring a loan with 10% down, and avoid PMI is very tempting as well.

What is the downside?

HELOCs are typically on variable rates. There are some fixed options out there, but typically they're on variable, and the rate can adjust frequently.

The HELOC's rate is much higher. Granted, it's on a lower balance.

BALLOON LOANS

We won't need to spend much time on this.

A balloon just means that the loan is due in full earlier than the schedule at which you're paying.

If you have minimum monthly payments scheduled on a 30 year term, but there's a 10 year balloon feature, it means that the loan will be due in 10 years, even though you've been paying as if it's a 30 year term.

So either you need to pay more than the minimum by the time 10 years is up, or, you need to refinance/pay it off by year 10.

Most loans do not have this feature, but you can always check on page 1 of your Loan Estimate.

REVERSE MORTGAGE

Quick definition:

A type of home loan available to homeowners aged 62 or older that allows them to convert part of their home’s equity into cash. Instead of making monthly mortgage payments, the borrower receives money from the lender. The loan is repaid when the borrower sells the home, moves out permanently, or passes away.

Why it might be beneficial

If a senior (62+) is on a fixed income, but starts drowning in rising living expenses, a reverse mortgage might be the ticket out of at least one expense.

It doesn't have a monthly payment. Here's the catch:

The interest continues to grow unchecked if you don't make a monthly payment.

One myth that needs to be busted

If a house has a reverse mortgage (FHA insured HECM), it doesn't mean the government takes the property, even if the interest outpaces the appreciation.

The heirs can buy the property at the lower of the two: the balance owed, or 95% of the value.

Let that sink in.

Even if the balance were at $500,000 and the home was worth $400,000, the heirs could buy it at $380,000.00.

If the balance were at $200,000 and the home was worth $400,000, they can buy it at $200,000.

Here's what the heirs can do if they don't want to buy the property.

1. Walk Away

The simplest and most common choice.

HECM reverse mortgages are non-recourse, meaning the heirs are not personally liable for the debt.

The lender (or HUD, if it's FHA-insured) will foreclose, sell the home, and absorb any loss beyond the home’s value.

The heirs do not owe the difference if the loan exceeds the property value.

2. Sell the Home Themselves

If there’s still equity (the home is worth more than the loan balance), the heirs can:

• List and sell the home
• Use the proceeds to pay off the reverse mortgage balance
• Keep any remaining funds

If the loan is less than 95% of the appraised value, this option makes financial sense.

3. Deed in Lieu of Foreclosure

If they want to avoid the hassle of formal foreclosure, the heirs can:

• Sign over the deed to the lender
• Avoid the foreclosure process
• Walk away cleanly

The downside

The fees and costs are much higher than a typical refinance.

To qualify for a reverse mortgage, depending on the borrower's age, you may need A LOT of equity.

And lastly, if the borrower wants to exit the reverse mortgage it might be a little harder to do, especially if the loan balance exceeds the value. The borrower would need to pay down the loan fit other lending criteria (conventional or FHA loan-to-value limits) to exit the reverse mortgage.

Summary

Hopefully you have a little bit better of an understanding around these goofy product names. DM me if you need help with anything.