At least one local bank will increase prime rates for residential mortgages starting Friday in response to the U.S. Federal Reserve announcement Wednesday that it would increase a key interest rate.
According to the Associated Press, the U.S. central bank announced that it would raise its benchmark rate from 0.5 percent to 0.75 percent. The Federal Reserve last raised rates in December 2015.
The rate affects interest paid on credit cards, home equity loans and adjustable rate mortgages. It does not affect fixed-term mortgages, student loans or auto loans.
Butterfield Bank announced late Wednesday that its U.S. and Cayman dollar prime rates for residential mortgages, consumer loans and commercial loans would increase from 3.5 percent to 3.75 percent in response to the Fed’s move. The rate increase takes effect Dec. 16.
Even though the prime rate is increasing, Butterfield’s Rory Mann said the dollar amount of customers’ monthly loan and mortgage payments would not increase; rather, the bank would push back the current terms of a customer’s mortgage to account for the rate increase.
“Butterfield is automatically extending the terms of loans and mortgages to assist customers with the rate adjustment,” Mr. Mann said. “Butterfield is not adjusting deposit rates at this time.”
Bank loan customers who want to increase monthly payments to keep current payment schedules are asked to contact Butterfield’s personal lending office at 949-7055.
The Fed’s second interest rate hike in the past decade likely will not be the last. The reserve bank forecast three more interest rate hikes during 2017, according to the Associated Press.
“We expect that the economy will continue to perform well, with the job market strengthening further, and inflation rising to 2 percent over the next couple of years,” Fed chairwoman Janet Yellen said after Wednesday’s policy meeting.
The Cayman Compass contacted other commercial and home mortgage lenders in Cayman, including Cayman National Bank, Scotiabank and the Royal Bank of Canada, but received no response by press time Thursday.
Some economists’ concerns about higher interest rates and inflation in the U.S. in the wake of Donald J. Trump’s November election may affect the Cayman Islands real estate market if adjustable mortgage rates do increase, in an environment that has already seen record home foreclosures over the past few years.
The Cayman Islands Real Estate Brokers Association reported 116 forced sales of foreclosed homes by the end of 2015. According to CIREBA, 30 forced sales recorded in 2011.
The 2015 number follows on from a then-record year in 2013 when there were 65 completed foreclosures of homes, businesses or properties.
According to figures presented by the government in 2015, Cayman has recorded 192 competed foreclosures since 2008, the lowest number recorded in the Caribbean, Finance Minister Marco Archer said.
Completed foreclosures are cases in which banks have sold the property following a default on a mortgage. Other properties in foreclosure would not be recorded if they had not sold.
In addition to the 192 completed foreclosures since 2008, there were another 180 “historical” foreclosures as of last year where properties had not been sold, according to the government.