HOMEOWNERS SEEK FINANCING OPTIONS
As Pittsburgh mortgage rates go up, home buyers, owners scope for better options
The Beaver Falls home that Linda Neely was raised in and inherited from her parents began showing its age in recent years, forcing her to make some expensive updates and repairs.
“My dad built this house,” said Ms. Neely, 70. “This house means the world to me. Upkeep means everything and it takes money for that.
“When you’re a homeowner, there’s always going to be something the house needs and it’s difficult, especially on a fixed income.”
The retired fourth-grade teacher who spent 35 years in the Blackhawk School District used a Home Depot credit card to fill the gap between her pension and Social Security income. While it was a convenient way to get the work done, the credit card, which charges an interest rate ranging from 17.99 percent to 26.99 percent, turned out to be one of the more expensive ways to finance the job.
She decided a better long-term solution would be a home equity line of credit. The $20,000 line of credit she received from Huntington Bank allowed her to pay back the credit card funds and pay a much lower rate on the equity line.
As home values across the Pittsburgh region continue to rise and 30-year fixed mortgage rates jump above 4 percent, people who want to buy homes are wasting no time applying for loans, hoping to lock in rates before they go higher.
Homeowners, like Ms. Neely, also are taking advantage of lower rates to leverage the equity they have built up, although the refinance market overall has slowed down.
The Washington, D.C.-based Mortgage Bankers Association reports the refinance share of mortgage activity has been falling off and the home purchase share has been either flat or slightly rising since the fourth quarter of 2016. Interest rates began rising slowly in the fourth quarter and then picked up rapidly after the November election.
Mortgage rates tend to follow the direction of the Federal Funds rate, the overnight rate that banks charge each other to borrow money, which the Federal Reserve voted to increase earlier this month. The current funds rate is 1.0 percent. The Federal Reserve expects to raise rates two more times this year to 1.5 percent. It has signaled it will raise rates to 2 percent in 2018 and 3 percent in 2019.
Home buyers appear to be locking in rates before they increase. Mortgage applications to purchase homes were up 4 percent in February compared to February 2016.
However, refinance applications are down 44 percent in February compared to February 2016, according to the bankers association.
“Now that rates are rising, there’s no advantage to refinancing because so many people have already locked in a low mortgage rate,” said Lynn Fisher, vice president of research economics at the association. “But even though rates are moving up, people looking to buy homes are feeling better about their job prospects.”
Jay Plum, consumer and
mortgage lending director for Huntington Bank in Cincinnati, said during the financial crisis consumers couldn’t buy a new home if they couldn’t sell the one they were in.
Now that property values have stabilized and even gone up in cities like Pittsburgh, Cleveland and Cincinnati, people who wish to do so can look forward to selling their home and buying a new one, he said.
“This idea of stabilized property values gives customers a lot of flexibility because if they don’t want to buy a new home they can use the equity in their existing home to establish a home equity line of credit,” Mr. Plum said. “Either way, the property value situation has really given customers options.
“Property values in Pittsburgh didn’t decline as much as they did in California,” he said. “But they did decline.
“Now that property values are going in the other direction, consumers would be well served to understand what that means for them. We do see the purchase market being a big factor for us. So we are not that worried about the decline in refinancing.”
Not everyone wants to buy a new home. But if they are like Ms. Neely and want to fix the home they are in, a home equity line of credit may be an attractive option. According to Bankrate.com, the current average rate banks are offering for 30year fixed rate mortgages is 4.29 percent. The average rate on 30-year fixed rate refinancing is 4.01 percent.
Huntington Bank, the largest purchase mortgage lender in Ohio, is offering rates as low as 4.37 percent for 30-year mortgages. Rates for home equity lines of credit range from 3.75 percent to 9 percent, depending on how much equity is in the home, whether it already has a mortgage, and credit scores that may be less than perfect.
Ms. Neely is paying 8.59 percent for 30 years on her $20,000 home equity line of credit, which is higher than the prime rate but significantly lower than the interest rate she had been paying on her Home Depot credit card.
Her payments for the Huntington Bank loan were set at $136 a month, but she pays $200 toward the debt to wipe it out in less time.
The house she lives in holds many fond memories of her family and her childhood. The improvements she has made have improved her quality of life as well as the home’s value.
Ms. Neely, who formally retired from school teaching in June 2007, has no children of her own but she considers the army of children she taught over 35 years to be part of her extended family. In a small community like Beaver Falls, she said her former students are always expressing their appreciation to her everywhere she goes.
“I will bump into them all the time,” she said. “I have taught the children of children I taught. I love it.”