Louisiana Housing Market Booming; Most Buyers Opt For Fixed-Rate, 30-Year Home Loans

More buyers are flocking to 30-year, fixed-rate home loans in Louisiana as homes fly off the market. In Baton Rouge, houses cost more since Hurricane Katrina, but not enough to make people seriously consider some of the more exotic options gaining popularity in other areas.

People are increasingly drawn to 40-year Florida home loans in this area of stratospheric property values. The same goes for the 40-year loan’s even more extreme cousin, the 50-year mortgage. In parts of the South Florida housing market, as well as much of California, it’s the only way millions of middle-income dwellers can afford to buy homes.

Not so in Baton Rouge, however, which is still a relative bargain in terms of price per square foot and property taxes. The 30-year mortgage is still the path most home-buyers are taking, according to Jose Arias, Assistant V.P. in Whitney Bank’s mortgage lending department in Baton Rouge.

Roughly 99 percent of buyers are taking the 30-year, fixed-rate route, he says, noting that Whitney Bank is a Fannie Mae lender — meaning it will not even offer a 40- or 50-year home loan. The Baton Rouge market, by the way, is hot.

“When somebody wants to purchase a home and they have to sell theirs, I encourage them to go and find a home first, because whenever they put their home on the market, they sell it within 30-60 days,” Arias said. “Before you put your house on the market, make sure you already have a house picked out. That’s how good our market is.”

Part of the reason for that is a lot of people driven out of their homes by Katrina are flush with FEMA and/or insurance money and can afford to put a substantial amount down toward the purchase of a new place to live in this market. It’s also a market conducive to sellers paying closing costs and builders offering incentives, which means buyers can put more money down and ensure lower mortgage rates.

As Florida home loan rates rise, more people are opting for the fixed rate. Louisiana buyers are following the same progression. When rates were low and stable just two or three years ago, adjustable-rate mortgages represented a good way to keep payments low. Once rising rates started pushing payments upward, red flags started flapping, and people flocked to the fixed rate.

“A lot of the adjustable rate loans were on two- to three-year adjustment period,” said Frank Joffrion, owner of Celtic Mortgage. “Two or three years ago rates were pretty flat. The last few months, they’ve been ramping up. [Buyers] know that in another year or two the same thing’s going to happen.”

Joffrion rarely sees a 40-year mortgage. It’s mostly 30-year, with select buyers who can afford it and want to pay off houses fast go for 15-year options.

• The shorter the loan, the faster the amortization and lower the interest rate. A buyer can save 40 percent, potentially, with a 15-year mortgage.
• For instance, on a $150,000 loan at 6 percent interest, the buyer with the 15-year mortgage would save about $96,000 over the term of the loan compared to the 30-year, assuming each loan reached maturity.
• Generally, the safest loans are those that give the buyer some financial latitude early on, without putting a tight squeeze on later — a function of the loan amount and a rate the buyer can afford.

Joffrion says it’s unwise to “max out” on a plan you can barely afford from the start, as a disruption in income can mean losing one’s home. Yet some people go all the way to the edge because they’re confident they’ll make more money down the line.

“Some people will do that because they know they’re in a position where their income is going to increase steadily, They’ll buy as much as they can,” Joffrion said.

Of course, people sometimes guess wrong, and foreclosure rears its ugly head every single day.

Wynona Squires, a RE/MAX FIRST owner/agent, says that no down payment, 100 percent financing was going on early in the year, with about 70 percent of those loans going to first-time buyers. The market has cooled off as rates have risen. Her more mature buyers have been going with the 80/20 loans — actually two loans with different mortgage rates.

The first loan, for 80 percent of the purchase prices, has a lower interest rate and the second one, for the remaining 20 percent, brings a higher rate. The loan is broken up to avoid private mortgage insurance, which would be assessed by many lenders if the buyer did not produce 20 percent down.

Squires says most buyers who have sold houses elsewhere to buy in Baton Rouge are putting 15-20 percent down on 15- or 30-year loans. Lenders are paying particularly close attention to appraisals in this market, but at the same time, houses are going fast. Buyers understand they don’t have time, so once they find a house, they decide if they want to buy it.

What was a $95,000 house before Katrina is now a $130,000 house. Meanwhile, under $150,000, there’s hardly anything “worth living in,” according to Squires. Even new construction homes do not stay on the market for long.