Florida Home Loans Inch Higher Again; Refinancing Activity Still On the Rise

Looking to refinance your dream home now that rates are starting to rise? It might be a good time to. Long-term Florida home loans didn’t make another huge leap, but they did inch up .03 percent in the past week, according to Bankrate.com. The 30-year fixed-rate mortgage rose to 6.67 percent in the site’s national survey of lenders.

One year ago, the Florida home loans of this nature averaged 5.81 percent, while four weeks ago, the reported average was 6.51 percent. This marked the sixth consecutive week that 30-year fixed rates increased, and the highest level overall since June 2002. Mortgages in this week’s survey averaged 0.36 discount / origination points.

Meanwhile, 15-year fixed-rate Florida mortgage rates rose by a similar margin, up .02 percent to 6.29, as 5/1 adjustable-rate mortgages inched up to 6.32 percent from 6.31 a week ago. This week was out of character for the past several months. Short-term home loan rates have risen faster than long-term rates, a pattern resulting in a wave of cash-out refinancing — a refinance option in which the new loan balance is bigger than the old loan balance.

In the first three months of 2006, Freddie Mac reported that 88 percent of refinance borrowers ended up with higher balances, and more than half with a higher rate as well.

“Almost no one is refinancing to reduce their interest rate in today’s environment,” Freddie Mac Chief Economist Frank Nothaft said.

The nation’s borrowers aren’t crazy. They’re simply doing the math. People everywhere can lower their total monthly debt payments by refinancing to pay down higher-interest credit card debts as well as home equity lines of credit.

“You have to get out a pad and a pen a lot of times,” says Bob Moulton, president of American Mortgage, a brokerage that conducts business in both the New York and Florida home loan industries. “You write down what you are paying on your mortgage, your credit cards, your home equity line of credit every month. Then you calculate your monthly costs, if you did a cash-out refinance, and the numbers speak for themselves.”

Here’s the kind of calculation he’s talking about:

• Let’s say you have a 3/1 ARM that you signed up for a couple of years ago, taking out $300,000 at a 5.5 percent rate.
• You opened a home equity line of credit a year and a half ago at 4.5 percent, and immediately borrowed $30,000 against it for a minimum monthly payment of $112.50. Back then, the monthly payments for the two loans was $1,815.87.
• Next week, the credit line will sport a rate of 8 percent, raising the minimum monthly payment to $200 and the total monthly Florida home loan payments to $1,903.37.

It’s a pretty easy call, and to top it all off, the adjustable-rate loan will reset next year, probably raising the rate north of 7 percent. Not only that, but the cap on the ARM’s rate is around 11 percent, so your monthly payments conceivably could go much higher in a few years. If you plan to remain in the house for a few years, it’s a wise move to swap a fixed-rate loan for that ARM, even with fixed-rate loans on the rise.

The borrower in the above example could replace the ARM with a $300,000 fixed-rate Florida home loan and not touch the credit line. At a rate of 6.5 percent, that raises the total monthly payments to $2,096.20. As significant as that increase may seem, it beats what you’d be looking at next year if you toughed out the ARM. When you’re talking about Florida home loans, it pays to consider all of your options. Thoroughly.