The desire to be homeowners is one of the main reasons Americans borrow today. The rate at which people take mortgages has significantly increased in the last decade. But since a mortgage involves using borrowed money, it comes at a cost and you really need to be careful.
You are supposed to know the implications of not living to the payments. In this blog, we are going to focus more on two mortgage lenders – credit union and bank. In the end, we will respond to the question – Is It Better to Get a Mortgage from a Bank or Credit Union? Let’s begin by understanding how mortgages work.
A mortgage refers to a loan that uses a property as collateral. In some cases, even real estate is used as loan security. In the mortgage agreement, the borrower is given a cash upfront but required to make payments within an agreed period of time until the loan is paid in full amount. When used to acquire a home, a mortgage can be termed as a home loan. A mortgage arrangement is so important. Imagine becoming a homeowner even without money to finance the purchase! There are three main things that characterize mortgage loans. These include the interest rates, the regular payment, and the duration of the loan.
Remember mortgages work in a similar manner as goods and services. This means there are variations in demand and supply based on the market condition. This also implies that the interest rates charged by lenders can be high or low at different times. To make the right decision, check out LoanAdvisor. Having this knowledge, let us now shift our attention to the mortgage lenders. In case you had entered an agreement with the lender and later the rates drop, there is a provision to sign another contract at the prevailing market rates.
Will You Prefer A Mortgage From A Bank Or Credit Union?
If you are considering buying a home, you must carefully decide on the type of the lender you will deal with. Generally, there are two major types of mortgage lenders: credit unions and banks. Each one of them will help realize your goal. However, they also have advantages and disadvantages. Some of these pros and cons are sufficient enough to help you make the right decision. In these sections, we are going to look at the key features and how they differ between the two. Let us begin…
- Terms. The main reason for the existence of banks is to profit. For this reason, the rates charged are usually higher compared to what credit unions charge for the same loan type and size. This is because credit unions are mainly focused on improving the welfare of its members rather than making profits. In fact, the extra earnings received are always given back to members in terms of lessened fees and increased interests. This means that if you choose a credit union, your home loan will have reduced closing costs along with a lower origination fee. The interest rates in credit unions are often lower compared to banks, though the difference may not be quite significant. Nevertheless, that smaller percentage difference between the two counts in the end. So then, on the basis of terms, credit union mortgage is a better choice.
- Approval process. Approval for mortgage loans under credit union is often less difficult compared to banks. This is because credit unions are not corporate with centralized rules and regulations to be followed. They can easily work with non-conventional income types as well as clients with poor financial background. If your credit score is not that good, you have defaulted loans in the past, or you are a freelancer, the right way to go is a credit union. In these conditions, they are approachable and more willing to deal with you than banks. Since they exclusively deal with members. Special offers are often extended to borrowers. This involves a mortgage that is specifically in line with your level of income. Again on the basis of the approval process, the credit union is the best option.
- The institution’s philosophy. As we earlier highlighted, the objective of a bank is to make money. The terms of the home loan, the risks are taken, and the approval requirements take into account all these. In contrast, credit unions are mainly concerned with customizing products so that both parties can benefit. They focus on lowering rates and making their members happy and contented. What is more, loan periods in banks will remain to be 15 or 30 years, the set standard for mortgages. On the other hand, credit unions can extend loan duration up to 40 years. They often reorganize interest payments if doing so can benefit members without increasing risks. Again on general philosophy, a credit union is the best option.
- Accessibility. When it comes to accessibility, the two options may all be advantages. Usually, banks have many branches and can be accessed with ease. In addition, they are well-developed technologically compared to credit unions. Have you ever come across a credit union app? I don’t think there is any. Accessibility is an important factor for users. Whenever you have an issue relating to your mortgage payment, you can easily raise a concern online. On the other hand, it is possible to maintain your saving and checking accounts with your credit union, or rather your mortgage provider.
- Checking account charges. It is important to consider the charges of checking accounts in both options before making a decision. In general, credit unions are cheaper when it comes to checking accounts. Always try checking with the institutions to ascertain the charges.
The Bottom Line
Banks and credit unions offer mortgage loans. Each of the two has the right to develop their own lending terms and fees. One option may be cheaper today but quite expensive than the other later. It is always good to shop around. The cost of credit union mortgages varies with regions and membership. However, market condition is the key determinant in banks. So weigh the two options and choose the one that gives you a lot of benefits.