Jumbo mortgages are used to purchase or refinance luxury homes that require larger than normal loans. While they're convenient, they also have slightly higher interest rates than government subsidized loans. Since the dollar amount that defines a jumbo mortgage is redefined each year, it's subject to change.

Bigger isn't always better, especially when it comes to home mortgages. The term "jumbo" mortgage applies to loans for exceptionally high dollar amounts. Each year, Fannie Mae (FNMA) and Freddie Mac (FHLMC), the government-affiliated agencies that market mortgages within the U.S., define the point at which a traditional mortgage ends, and a jumbo begins. These types of loans are increasingly popular-and necessary-for buyers trying to borrow large amounts to purchase their homes.

It may not seem fair that higher mortgages are saddled with higher interest rates, but the economic logic behind it makes sense. Both FHMA and FHLMC purchase the bulk of U.S. residential mortgages, and then resell them to professional investors. They're packaged together, and then traded on the market in a similar manner to the way stocks are traded on Wall Street. The FEDERAL RESERVE plays a large roll in this market. But a jumbo loan isn't as easy as conventional loans to resell to investors, so the market for them is smaller. Currently jumbo loans represent about 10% of the total mortgage market. As a result, lenders typically charge more interest on these mortgages to help make them more profitable.