Borrowers, Florida Mortgage Lenders Exercise Caution
Rising interest rates are hitting home with borrowers, causing buyers and Florida mortgage lenders to be more cautious.
The flow of money available for the real estate market has slowed as interest rates on fixed- and adjustable-rate Florida mortgages have risen.
The increase in rates on adjustable loans has been particularly significant. Many homeowners who took out mortgages that guaranteed low rates for one to five years now face significantly higher monthly payments after those periods expired and are Florida mortgage refinancing into long-term fixed-rate loans.
Risks associated with increased payments, such as foreclosures and lower credit scores, have caused lenders to tighten their underwriting criteria and reduce the types of loans they offer.
The 30-year fixed rate rose from an average of 6.22 percent in January to 6.66 percent in June, according to Freddie Mac’s Primary Mortgage Market Survey. The average rate on five-year adjustable-rate Florida mortgages increased from 6.02 percent in January to 6.31 percent in June while the average for one-year ARMs climbed from 5.47 percent to 5.68 percent.
Borrowers who originally received an ARM fixed at a 3 percent to 4 percent rate several years ago have found their rates have doubled after adjustment in some instances and worry they could increase further. About 15 percent of SunTrust Mortgage Inc.’s Jacksonville loans were a Florida refinance in June, said Stuart Williams, executive vice president.
Refinancing into a long-term, fixed-rate loan “allows them to have a peace of mind,” Williams said. “Especially with the baby boomers who are looking at retirement.”
There should be at least a 1.5 percent difference between ARMs and fixed, said Ben Bishop, president of Jacksonville-based brokerage company Bishop Lending Group LLC. “ARMs really aren’t even competitive.”
About two of every five loans are refinanced mortgages at Bishop Lending. A 30-year fixed rate at 6.5 percent on a $150,000 loan is about $950 a month with principal and interest. For someone who got an ARM and now their first adjustment is 7.5 percent, that monthly payment will go up to $1,048 per month, Bishop said.
“Paying an extra $100 a month and after taxes could be a dramatic impact to the consumer.”
As more borrowers switched to fixed rates during the past 12 months, lenders have tightened rules in approving refinanced Florida mortgage loans.
Someone who started with a 100 percent financed ARM may not be able to refinance because there’s no equity in the property if it did not appreciate as expected, Bishop said. Credit ratings may have deteriorated as well if borrowers had trouble meeting the increased payments.
Also, lenders have lowered loan-to-value ratios to more conservative levels, said commercial finance attorney John Sefton, a partner at the Foley & Lardner LLP office in Jacksonville. Tighter credit standards have contributed to the decline in home sales.
McLean, Va.-based Freddie Mac recently lowered its forecast for housing starts, sales and home price appreciation because of higher mortgage rates. Freddie Mac stated that housing starts would be down 19 percent and home sales down 6.7 percent from last year. It expects mortgage rates to remain stable for the rest of the year.
Rates should stay constant for the next three to four months, Williams said, which means that people are becoming more confident that it is a good time to buy, particularly in the Jacksonville housing market.
“This place is a city where, when the economy is hot, we’re not as hot and when the economy is slow, we’re not as slow.”
