Mortgage rate rise pressures LI house hunters
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The recent sharp rise in mortgage interest rates is forcing some Long Island house hunters to trim their budgets or scramble to put more money down.
The surge in mortgage rates will cause the most pain among first-time home buyers and others at the lower end of the market, local experts say. Higher rates cause monthly payments to grow, and can prompt lenders to decrease the size of loans.
Rates for 30-year fixed mortgages jumped last week to an average of 4.46 percent, the highest in two years, up from 3.93 percent the week before, mortgage giant Freddie Mac reported. The record low was 3.31 percent in November 2012. In early May the rate was 3.35 percent.
Rates have risen because investors worry the Federal Reserve's efforts to stimulate the economy and hold down long-term rates may end soon.
Jack Shaffer, a Lake Success financial planner who is shopping for a home in Nassau County or Queens, said the higher interest rates still strike him as a good deal. However, he said, he and his wife might need to pull more from savings or buy a less expensive house. "You kind of sugarcoat it in your own mind -- 'Oh, it's only a point,' " Shaffer said. "A point can make a lot of difference."
Home prices haven't fallen, real estate agents said, though they are likely to take a hit if loan rates exceed 5 or 6 percent.
For now, shoppers are competing to snap up homes, brokers said. "It's still cheap money," said Andy Yakubovsky, manager at Century 21 Prevete-Bastone in Massapequa.
There were 17,412 homes for sale on Long Island in May, down nearly 20 percent compared to a year earlier, according to the Multiple Listing Service of Long Island.
Business has been a bit brisker at Bethpage Federal Credit Union as borrowers try to lock in rates before they rise further, said chief executive Kirk Kordeleski.
The Long Island Housing Partnership in Hauppauge fielded more calls than usual last week from first-time buyers seeking mortgage counseling, said chief executive Peter Elkowitz. "They were all waiting to see how low interest rates would go and how low prices would go," he said.
Some first-time buyers "may disappear back into the rental market," said Claudia Cesare of Signature Premier Properties in Huntington.
Many buyers have switched in recent weeks from fixed-rate to cheaper adjustable-rate mortgages, said Bob Moulton, president of Americana Mortgage Group in Manhasset. Such mortgages typically hold rates steady for periods of three, five, seven or 10 years, after which rates vary with the market.
A few buyers are "buying down points," or paying an up-front fee to get a reduced interest rate. Others are taking out "piggyback loans" or home equity loans to help fund the purchase.
However, buying down points does not always pay off, and rising home equity loan rates could cause problems for borrowers, Kordeleski said: "What seems like a good deal now could be not nearly as good a deal a few years from now."