News that the Federal Reserve was raising interest rates by a quarter point came as no big surprise to Tampa Bay bankers — the move was widely expected as a move to calm lingering inflation.
The Fed is not done either, indicating that rates should rise a few more times before the end of the year, pushing the prime rate above 5% or even 6%.
The question now is: how much will interest rates rise before local customers reduce their borrowing?
It might be higher than you think.
“At one point there was a lot of talk about the Fed raising it by half a point instead of a quarter point,” said David Mastrorio, executive vice president and chief loan officer at First Citrus. Bank in Tampa. “So the market at one point basically priced in that it was going to happen, and it didn’t happen – it was actually less. So I don’t think a single rate increase or maybe even a few rate increases will have such a big impact.
The Fed’s hike pushed the prime interest rate, or the best rate borrowers typically get from their lenders, from 3.25 to 3.5 percent. By the end of the year, this could exceed 5%.
But for the moment, the prices remain relatively attractive. And customers inside and outside Tampa Bay haven’t stopped borrowing.
“Rates are still good,” said Tom Zernick, president of First Home Bank in St. Petersburg. “We’ve been in such a low rate environment that some of the rate normalization that we’ll see over the course of the year is much better than rates have been historically over the years.”
Michael Hartman, senior vice president of lending at Suncoast Credit Union, said he’s seen a slight drop in mortgage activity since the start of the year. But at the same time, members are actively refinancing their mortgages or seeking home equity loans to create cash flow.
“Because of the increase in home values over the last year or so, people are accessing that equity through home equity loans,” he said. “We have seen an increase in this market.”
For new home buyers, members are still trying to lock in 30-year fixed rate mortgages while rates are still relatively low. But as the prime rate climbs to 4.5 or 5 percent, Hartman said more and more people will be interested in adjustable-rate loans.
“That’s always been the historical pattern, so we would probably expect that to continue,” he said.
On the business side, borrowing remains strong, even after banks processed hundreds of billions of dollars in forgivable relief loans from the US Small Business Administration’s Paycheck Protection Program.
First Home Bank does a lot of business through the agency, which offers floating loans to businesses that may struggle to secure loans from other lenders. Although these loans are variable and not fixed, they generally require lower down payments and longer repayment terms, which makes them attractive even in times of rising rates.
“In my SBA lending history, which spans three decades, I’ve worked in environments where the prime (interest rate) was 6%, 7%, and you know what, companies have always need capital,” Zernick said. “As long as it’s structured properly…people continue to borrow, grow and develop.”
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Rather than riding their financial wagons, some companies are looking to invest in real estate and infrastructure, Mastrorio said, so they’re ready to jump in when headwinds such as workforce retention , supply chain slowdowns and inflated prices are easing.
“Most of our customers tell us the demand is there,” Mastrorio said. “A lot of what we’re looking at is expanding businesses – lots of loans to acquire new properties or to build new facilities to continue to allow their business to expand. That’s largely what we’ve seen over the past 12 to 18 months or so.
Zernick said now is the time for home and business owners to review their debt schedules in everything from credit card bills to auto or business loans. If any of them are tied to the Fed’s prime rate, “they should see if they can consolidate and refinance into a lower rate product, and help their cash flow in these inflationary times,” he said. he declared.
“It’s a good time to give your business a financial physical and give yourself one,” Zernick said.
If you can do that before rates go back up, great.
“Rates are obviously historically very low wherever they are now compared to six months or 12 months ago, or even six or 12 months from now,” Mastrorio said. “But they are definitely on the rise. So if I plan on doing something, the sooner I do it, the lower the rate I’ll get.