One downside to taking out a mortgage on a mansion in the Hamptons is that you usually pay a higher interest rate than if you were buying a less-expensive tract home.
Now that isn't necessarily the case anymore.
Local and national mortgage experts say that, in a highly unusual situation, the cost of a "jumbo" loan is roughly equal to the cost of a smaller loan -- and in some cases, it can even be lower.
The average rate for a 30-year, fixed-rate jumbo loan was 4.71 percent last week, slightly less than the 4.73 percent rate for smaller loans, the Mortgage Bankers Association reported this week.
In most of the country, loans of $417,000 or less are considered "conforming" loans, which are typically less expensive than jumbo loans. In high-cost housing markets such as the New York metropolitan area, the limit is higher: $625,500. Conforming loans are those that can be backed by mortgage giants Fannie Mae and Freddie Mac.
The fact that large loans have become cheaper than smaller ones has startled some mortgage insiders.
"Within the last 30 years it's unprecedented," said Ace Watanasuparp, president of Manhattan-based DE Capital Mortgage, which is affiliated with Wells Fargo.
The reasons for the changing rate relationship are varied. Fannie Mae and Freddie Mac have increased the amounts they charge lenders, driving up the cost of conforming loans, mortgage experts say. In addition, rates for such loans have risen as the Federal Reserve prepares to ease off its purchases of mortgage-backed securities.
By contrast, jumbo loans are much less likely to be sold to investors, so lenders have more flexibility in setting rates. Plus, lenders use low rates to draw in affluent clients.
Two Long Island-based mortgage insiders said they have not seen jumbo loans become cheaper than smaller loans.
Michael McHugh, chief executive of Continental Home Loans in Melville, said jumbo loans bear interest rates that are 0.25 to 0.5 percent higher than conforming loans.
Bob Moulton, president of Americana Mortgage Group in Manhasset, said rates for conforming and jumbo loans are roughly equal.
What is new, said Keith Gumbinger, vice president of mortgage data publisher HSH.com, is that "at the moment there's either no penalty or very little penalty for needing a large mortgage. For the vast majority of history there's always been a penalty."