NEW YORK (RateWatch) – When we looked at the worst home mortgage rates in the country earlier this week, we were struck by how many credit unions we came across. While credit unions comprised just 35% of the surveyed institutions, they claimed 11 of the top 20 highest mortgage APRs in the country. Does that mean credit unions typically have higher rates than banks?
In a word, no. The average rate for a 30-year fixed mortgage at a bank is 4.875%, according to RateWatch data. At a credit union, you’re looking at an average rate of 4.869% – almost identical.
So, with virtually no difference in rates between a bank and a credit union, where should a homebuyer go for a loan?
“Generally there’s no minus to going to a credit union for your mortgage,” says Guy Cecala, a mortgage expert and publisher of Inside Mortgage Finance Publications. “They’re not looking to make a lot of money off giving you a loan.”
That, in a nutshell, is the difference between credit unions and banks: Credit unions are member-owned and not-for-profit, which means they’re less likely to try and squeeze you to make a buck. Indeed, the fact that their rates are comparable to those of the big banks tells you everything you need to know about this difference in mentality. By virtue of their size, big banks should be better equipped than small credit unions to offer you a competitive rate on your loan, but most don’t.
Most importantly from a consumer perspective, this mentality means that a large bank is more likely than a credit union to kill you with high fees. “In this kind of environment, credit unions have cheaper fees,” confirms Cecala, pointing specifically to lender-controlled fees like origination and underwriting. For instance, a 1% origination fee on a $300,000 loan from a bank will tack on another $3,000 to your bill, and that’s money you could keep in your pocket if you go with a credit union, many of which waive origination fees altogether.
Of course, it’s possible to exaggerate the extent to which credit unions are ‘on your side.’ Member-owned or not, they still use the same criteria as banks to determine who gets approved for a loan. And while the customer service might be better at credit unions, they’re generally too small to handle the servicing of the loan on their own and are therefore more likely to sell your mortgage to a third party. So if you default on your mortgage, don’t expect better treatment during foreclosure proceedings just because the loan originated at your friendly neighborhood credit union.
Don’t expect it to be any worse, though. Cecala downplays the significance of the involvement of a third party servicing company, noting that the servicing transfer is regulated by federal law, that you’ll only interact with them if you’re late on a payment, and that the customer service you’d get from a large bank that services its own loans wouldn’t be materially different.
Still, it’s absolutely worth exploring the rates at your local credit union when shopping for a loan. Cecala recommends getting quotes from a small bank, a big bank and a credit union, and going with the credit union even if there are no apparent differences in rates and fees. Sure, you probably won’t have any further interaction with the credit union about your mortgage, but many who develop relationships with a credit union wind up coming back for an auto loan or other banking services later on.
“All things being equal, I think [a credit union] is a good move,” he says. “I don’t know anybody who has used a credit union and hasn’t recommended the experience.”
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