Most of us are aware of credit unions, the financial cooperatives structured to serve it’s membership. At a credit union, you’re a member instead of a customer.
Additionally, virtually all credit unions market themselves the same way with almost verbatim text:
Credit unions are not-for-profit financial cooperatives, whose earnings are paid back to members in the form of higher savings rates and lower loan rates.
While this is likely true when it comes to traditionally banking, it’s a little more problematic when it comes to mortgages.
1. First let’s compare rates.
According to what credit unions say about themselves, profits are returned back to members in the form of higher savings rates and lower loan rates. But a simple comparison of rates will make it very clear that credit union rates are not the lowest and often can’t compete with the profit driven banks. What gives?
The question of rates is complicated and set forth by a lender’s secondary department. To simplify a complicated process, the secondary department decides what loans to portfolio and what loans to sell. Then they’ll take a look at where the competition’s rates are and usually make a decision about where they want to be.
And having the lowest rates available is not usually the primary concern.
Credit Unions are not-for-profit and not nonprofit. They need to profit from their lending to pay for the many things a credit union needs to do. In fact, home loans is historically a very profitable department for credit unions. If the profit from originating loans pays for new branches, salaries, marketing campaigns to increase membership, and whatever else a credit union needs, you could make the argument the there’s a strong disincentive from dropping their rates too low.
The truth is credit unions know their membership is loyal and are not under the same price sensitive pressures for profit banks face from their customers.
It’s an effective form of marketing and if you’re wondering if they take advantage of this? Well, are their rates the lowest?
2. Not-for-Profit, Socialism and Inefficiencies
I know I’ve made the argument that credit unions are for profit but where they’re not is in the corporate culture of credit unions.
Another critically important part of the mortgage process is the underwriting process.
Smaller mortgage lenders and independent mortgage brokers typically take a different approach. They usually fully staff a cohesive in-house team. Along with having everyone under one roof, the team approach results in more efficient operations.
If you’d like to learn if a credit union mortgage is right for you, visit our Smart Mortgage Assistant. Answer a few simple questions and receive clear advice and simple side-by-side comparisons of your options, costs, and savings, personalized for your unique needs.
Spend a few minutes and see if the savings make sense for you.