By ANYA MARTIN

As the real-estate market rebounds, many luxury homeowners who just a few years ago had their heads underwater are now only ankle deep.

At the end of the first quarter, 20.6% of homes with jumbo mortgages were underwater, meaning the owners owed more on the mortgage than the home was worth. That's compared with 32.3% a year ago, according to real-estate website Zillow.com Z +1.08%.

More important, the level of negative equity has improved significantly for homeowners, said Stan Humphries, chief economist for Zillow. "Nationally most people in negative equity are in relatively shallow water, with less than 20% negative equity," he said, meaning that borrowers' loan-to-value percentage is less than 120%.

The Zillow analysis includes homes that have one jumbo mortgage and whose unpaid balance is still at a jumbo level, above the threshold for government-backed loans of $417,000 in most areas of the country and $625,500 in certain high-price home markets, such as New York, San Francisco and Boston.

The strengthening economy and housing market have boosted the value of high-end homes, which has translated to fewer homeowners underwater. As a result, more borrowers with jumbo mortgages will be eligible to refinance their loans at a time when interest rates are still historically low and the availability of jumbos is improving. As of June 21, the interest rate for a 30-year, fixed-rate jumbo was 4.52%, just 0.06 percentage point above the 4.46% rate for a 30-year fixed-rate conforming loan, which falls under the threshold for jumbo loans.

In five major metro areas, fewer than 10% of jumbo-loan borrowers owe more than their homes are worth. Those cities are San Jose, Calif., with just 5.8%; Boston, with 6.3%; Denver, with 6.6%; Dallas-Fort Worth, with 7.6%; and San Francisco, at 9.6%.

"Generally the California Sunbelt markets have seen the strongest recoveries, fueled by massive resets in affordability and very strong demographics coming from mainstream buyers, second-home buyers, retirees and a lot of international buyers," Mr. Humphries said.

Tight inventory and bidding wars are driving up home values rapidly in Silicon Valley and the San Francisco Bay area, and so far appraisals have been keeping pace, said Franco Terango, Pacific sales executive for Bank of America BAC +1.79%.

Beth Dickerson, an agent with Gibson/Back Bay Sotheby's International Realty, is seeing no mortgages underwater in the downtown Boston neighborhoods where she primarily works, such as Back Bay, Beacon Hill and South End, she said.

In the New York metro area, 14.5% of homes with jumbo mortgages are currently in negative equity, according to Zillow, but home values in Manhattan appear to have stabilized back to normal levels, said David Adamo, CEO of Luxury Mortgage, a lender based in Stamford, Conn. "Jumbo refinancing is back to business as usual," he added. "We're doing them all day, every day."

Jumbo loans themselves have become scarce in Las Vegas because of the steep drop in home values, but reduced prices can be a boon for luxury home buyers, said Casey Moseman, a broker with All Western Mortgage, based in Las Vegas.

Typically the only relief for a borrower with an underwater home value is a loan modification. Some lenders, though, are now offering refinance plans for their own underwater borrowers. For example, in late May, Wells Fargo rolled out a refinance program for its borrowers at near-market interest rates that would cover a home with up to a 200% loan-to-value percentage.

To qualify, borrowers still must have an excellent credit history, said Brad Blackwell, executive vice president, portfolio business manager at Wells Fargo Home Mortgage. "These programs are for customers who are doing just fine, but just had the unfortunate circumstance of buying a house at the peak of the market," he added.

Some more considerations if your jumbo loan is underwater.

• Time to take another look. Homeowners whose jumbo loans were in negative equity within the past few years may be pleasantly surprised to find out their values are no longer underwater or are significantly less so, Mr. Terango said.

• Cash in to qualify. With interest rates low, jumbo borrowers whose homes aren't significantly underwater may wish to put down cash to lower their loan amount, Mr. Adamo said.

• Policy changes. With the mortgage crisis abating, the federal government may lower conforming-loan limits, meaning that more underwater homeowners' only refinance option will be a jumbo mortgage, Mr. Humphries said.

• Don't forget credit scores. A negative hit to a credit score can affect the ability to qualify for a new mortgage or refinance later. Before agreeing to a modification, borrowers should ask lenders if they will report as having paid "less than agreed," Ms. Moseman said.