Rates Continue To Rise For Florida Home Loans; Biggest Impact Felt By ARMs

ATTENTION SHOPPERS: If you’re in the market for a Florida home loan, there is no time like the present.

Average mortgage rates have shot up by almost a full percentage point in the last 12 months, most recently with another increase this week, as reported by the Pittsburgh Post-Gazette and Bankrate.com. With standard 30-year, fixed-rate home loan rates edging up to 6.64 percent, mortgages are at their highest level in nearly four years and are expected to go higher yet.

• The current average is up from 6.27 percent at the beginning of 2006, and 5.85 percent at this time a year ago.
• For example, on a Florida home loan of $150,000, that increase translates into an extra $77 per month.

Meanwhile, 15-year mortgages rose to 6.27 percent, up slightly from last week and up markedly from 5.42 percent a year ago. One-year adjustable-rate mortgages (ARMs) hit 5.87 percent, up from 4.59 percent just 12 months ago — and the highest level in nearly five years. Much as all this might lead you to panic, rates still look pretty good by historical standards. The average 30-year rate isn’t all that far off the record low of 5.3 percent set in June 2003.

The biggest shock in recent weeks has been for holders of adjustable-rate mortgages. ARMs typically have lower interest rates than fixed mortgages initially, but after a certain period of time, the rate varies based on an index. Rates on ARMs have been rising more quickly than fixed-rate loans, in conjunction with the series of increases in short-term interest rate hikes by the Federal Reserve in an effort to combat inflation.

“If you have an adjustable-rate mortgage poised for an increase any time in the next two years, you are standing on the train tracks with the bright lights bearing down on you,” said Bankrate.com analyst Greg McBride. “Now is the time to get out of harms way.”

Whether refinancing makes sense for a homeowner depends in large part on whether they will be in the home long enough to recoup the closing costs. Generally, if you plan to stay put for more than three years, refinancing is worth looking into. Typically, ARMs don’t carry a prepayment penalty, but such penalties would come as an additional cost for homeowners with poor credit, and who are holding subprime loans with higher rates.

Conventional Florida home loans have remained surprisingly low until lately in spite of the Fed’s actions, but the acceleration in the past few months, coupled with market pressure for a smaller short- and long-term deviation, as well as concerns about higher energy prices and inflation, has caused some concern. Economists expect the average 30-year Florida mortgage to rise modestly in the coming months, nearing 7 percent by the year’s end.

“Fixed-rate mortgages will continue trending higher as the year progresses, but are likely to remain very attractive relative to adjustable rates as well as the historical average,” McBride said.

Mr. McBride isn’t a fan of interest-only mortgages, which allow borrowers to defer principal payments for five years or more, and which accounted for an estimated 27 percent of all home loans last year — up from 23 percent in 2004 and a mere 1 percent in 2000, according to LoanPerformance LLC, a San Francisco-based mortgage data firm.

Despite the recent Florida home loan cost increases, with the relatively low rates at present, buyers who can’t afford the monthly payment on a 30-year mortgage are buying too much home. Do not be tempted to reply on an interest-only or adjustable-rate Florida home loan just to squeeze into that dream house. Save a little more and reconsider your options.