At least one local bank will raise prime rates on residential mortgages starting Friday in response to the U.S. Federal Reserve’s announcement on Wednesday that it would raise a key interest rate.
According to the Associated Press, the US central bank has announced that it will increase its key rate from 0.5% to 0.75%. The Federal Reserve last hiked rates in December 2015.
The rate affects the interest paid on credit cards, home equity loans, and variable rate mortgages. It does not affect fixed-term mortgages, student loans, or auto loans.
Butterfield Bank announced Wednesday night that its U.S. and Cayman dollar prime rates for residential mortgages, consumer loans and commercial loans would drop from 3.5% to 3.75% in response to the Fed’s move. The price increase takes effect on December 16.
Even if the prime rate increases, Rory Mann of Butterfield said the dollar amount of clients’ monthly loan and mortgage payments will not increase; instead, the bank would push back the current terms of a customer’s mortgage to accommodate the rising rates.
“Butterfield automatically extends loan and mortgage terms to help customers adjust rates,” Mann said. “Butterfield is not adjusting deposit rates at this time.”
Bank loan customers who wish to increase their monthly payments to maintain current payment schedules are advised to contact Butterfield’s personal loan office at 949-7055.
The second Fed interest rate hike in the past decade is unlikely to be the last. The reserve bank is forecasting three more interest rate hikes in 2017, according to the Associated Press.
“We expect the economy to continue to perform well, with the labor market strengthening further and inflation reaching 2% over the next two years,” Fed Chairman Janet Yellen said after Wednesday’s political meeting.
The Cayman Compass contacted other commercial and residential mortgage lenders in the Cayman Islands, including Cayman National Bank, Scotiabank and Royal Bank of Canada, but received no response until press time on Thursday.
The concerns of some economists about rising interest rates and inflation in the United States following Donald J. Trump’s November election could affect the Cayman Islands real estate market if adjustable mortgage rates rise, 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 at the end of 2015. According to CIREBA, 30 forced sales were recorded in 2011.
The 2015 number follows a record year in 2013 when there were 65 foreclosures of homes, businesses or properties.
According to figures presented by the government in 2015, the Caymans have recorded 192 concurrent foreclosures since 2008, the lowest number recorded in the Caribbean, said Finance Minister Marco Archer.
Foreclosures are cases in which banks have sold the property as a result of a mortgage default. Other foreclosed properties would not be recorded if they had not been sold.
In addition to the 192 foreclosures made since 2008, there were 180 other “historic” foreclosures last year where properties had not been sold, according to the government.
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