BANKING

Rising interest rates have local lenders creating incentives targeting specific segments of the mort-gage market.

Northeast Credit Union is offering mortgages to lower-income buyers that are initially a percent lower than the national average. Provident Bank is giving the construction market what is essentially a fixed, 31-year mortgage.

Rising interest rates have softened the refinancing market, but have cre-ated the opportunity to get homeowners out of an adjustable rate mortgage or “creative” mortgage into a fixed loan, according to David Keslar, Portsmouth branch manager for Drew Mortgage Asso-ciates.

While the Fed’s short-term lending rate hike does not have a direct tie to long-term rates, it does impact home-equity lines, he said. A home-equity loan of $30,000, which cost 7.75 percent interest at the beginning of May, was at 8 percent by the second week of the month.

It affects home buyers who bought a blended, or first and second mortgage, to avoid paying mort-gage insurance. Blended mortgages are tied to the prime rate. Mortgage insurance is required for home buyers putting down less than 20 percent on their home. Mortgage companies found a loop-hole. Since the requirement was based on 80 percent of the loan value, some encouraged buyers to take out a first and second mortgage.

They were a good deal when the interest rate was around 4 percent, said Keslar, whose company did not recommend the deal. “People can’t afford the second rate on their mortgages,” he said. “They’ve gone up from 4 to 8 percent.” According to a May 10 article in The Boston Globe, rising in-terest rates have helped increase foreclosure filings in Massachusetts by 30 percent in the first three months of 2006.

Drew, a conservative company, advises clients to check the track record of the mortgage company with the Better Business Bureau before signing, Keslar said. Rising rates have the benefit of shaking unethical mortgage brokers and lenders out of the business, he said.

New Hampshire has benefited from higher real estate costs in Massachusetts, as Bay Staters move north for more affordable housing, Keslar said. Drew is primarily a purchase mortgage company, working with Realtors. Now that it’s more of a buyer’s market, Keslar said, sellers are often willing to pay closing costs, giving borrowers the best deal.

Northeast Credit Union is assisting first-time or lower-income buyers who are priced out of the Seacoast. Corresponding with rising interest rates, NECU came out with a Home Loan Payment Re-lief (HLPR) mortgage. The HLPR rate is a percent below the national average for a 30-year mortgage, according to Bruce Croteau, vice president of lending for NECU.

The standard rate as of May 9 was 6¼ percent; the HLPR rate is 5¼ percent. “It’s allowing more folks to qualify,” Croteau said.

The program’s main points: 3 percent down; no rate adjustments until the fourth year of the mort-gage; and a cap of 5 percent over the life of the loan. A user-friendly facet of HLPR: Homebuyers are not required to have private mortgage insurance. “It can make the difference between affording the home you want and not,” Croteau said. HLPR is part of a nationwide effort of credit unions. “The amount of commitment nationwide is billions; it’s staggering,” he said.

The program has been very successful in the Seacoast, where NECU has offices in Portsmouth, Exeter, Dover and Rochester. NECU committed $3 million to HLPR and quickly went through that. It went back to its board and asked for another $3 million. “We just closed 2.9 million,” Croteau said. “It allows us to reach more people, allows us to serve low- and moderate-income folks who have been unable to buy a first home, to move from a rental situation. Home ownership builds strong communities.”

Provident Bank is reaching out to consumers who are building their homes, according to Executive Vice President Chuck Withee. In March, the bank developed a fixed construction-to-permanent rate mortgage.

A construction loan usually has a variable rate. Once the house is finished, the buyer may take out a fixed loan. “A typical construction loan has a variable rate,” Withee said. “A lot can happen.”

As of May 9, a 30-year fixed rate cost 6.875 percent. “You could come in today and lock in a 30-year rate for up to 31 years, at 6.875 percent, no points and no fees,” Withee said. “Typically with a con-struction loan, there’s a point required up-front.”

Provident Bank, with offices throughout the Seacoast, is split down the middle between construc-tion and purchase mortgage business. “The refinance boom and purchase boom slowed a bit,” he said. “(The construction-to-permanent loan) is becoming a larger percentage of the market. This product allows us to stay at comfortable levels.”