Florida Mortgage Rates Hit 26-Month High

For the ninth consecutive week, mortgage rates have shot up. The main reason for this increase was due to the fear of bond investors over evidence that wage earners were making more money.

The benchmark 30-year, fixed-rate mortgage rose 5 basis points to 6.42%, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.32 discount and origination points. In contrast: One year ago, the mortgage index was 5.76%; four weeks ago it stood at 6.1%. This is the highest level for this type of mortgage since since Sept. 23, 2003, when it was 6.47%.

Employment rates affect loan rates

Most of the week’s rise occurred last Friday, after the Department of Labor released the employment report for October. Job creation wasn’t particular noteworthy, as nonfarm payrolls increased by just 56,000. The news about wages was mixed, depending on whether you work for a living or invest in bonds.

In October, the Labor Department states average weekly earnings jumped half a percent, to $549.93. That was the biggest monthly increase since February 2003. While this is positive news for wage earners, the bond market isn’t happy when you get a raise because that could cause inflation. As a result, bond yields rise, and so do interest rates. This explains last week’s numbers.

Of course, rising rates are nothing new. Adjustable-rate mortgages have climbed faster than fixed-rate loans in the last couple of months. Meanwhile, rates on equity lines of credit have risen even more, albeit over a longer period. As a result, odd things have happened with rates, and some homeowners are taking advantage by refinancing into fixed-rate mortgages. Could this be a solution for those unhappy with their current Florida home loan?

“What I’m finding is that people are trying to solidify their position for the next 10 to 30 years,” says Ellen Bitton, president of New York-based Park Avenue Mortgage. Her clients are rolling all of their mortgage debt into 30-year, fixed-rate mortgages or adjustable-rate mortgages with initial fixed rates that last 10 years. The goal is to curtail the negative effects of recent trends.

Should you refinance your adjustable rate home loan?

Typically, rates on adjustable-rate mortgages (ARM), are a lot lower than fixed-rate mortgages. At the beginning of 2005, the average 5/1 ARM was 68 basis points lower than the average rate on a 30-year fixed. This week the difference is 48 basis points. That makes the 5/1 ARM less attractive than it used to be when compared to the 30-year fixed.

Hybrid ARMs were a niche product for a while and became popular two years ago. With interest rates rising across the board, people who have hybrid ARMs know that their payments are going to jump.

Some are refinancing long before their initial rates adjust. For example, Bitton says she has a client who got a 7/1 ARM a few months ago, and now he wants to refinance into a 30-year fixed. He doesn’t have to worry about any upward rate adjustments until 2012, but he realizes now that he’s going to stay put for a long time. He might as well take advantage of the 30-year fixed while it’s still below 6.5 percent.

Rates on equity lines of credit have followed a more dramatic course than ARM rates. If you got a home equity line of credit in June 2004, its rate was about 1.21% lower than the average rate on a new 30-year fixed at the time. But equity credit lines are tied to the prime rate, which goes up every time the Federal Reserve boosts short-term interest rates. Since June 2004, the Fed has raised short-term rates by 3 percentage points. But the 30-year fixed is only a few basis points higher than it was back then.

As a result, the average rate on a credit line is now 60 basis points higher than the rate on a new 30-year fixed. That’s unusual, Bitton claims, and borrowers are noticing. Some are refinancing their primary mortgages for more than the amount owed, a maneuver known as a cash-out refi, and paying off their credit lines with the cashed-out amount. A handful of Florida home loan lenders offer this option to those unhappy with their current packages.