Credit Unions: An Unexpected Source of Mortgage Loans

According to conventional wisdom and common sense, you go to a mortgage broker to get the best deals on mortgage loans. These brokers do offer a diverse array of options. However, there’s one type of loan that mortgage brokers ordinarily neglect to mention: the credit union mortgage.

Credit unions have a few important advantages over most lenders. One advantage of credit unions is that they operate on a small scale and focus on relatively low-risk loans. As a consequence, credit unions have not suffered as much as other institutions during the subprime crisis.

However, the most important advantage of credit unions is that they are not run for profit. They are community organizations that exist for the mutual benefit of their members. Consequently, credit unions can loan their members money at lower rates.

Credit union members can most clearly see this difference when they sign up for credit union mortgages. An adjustable-rate mortgage (ARM) with one Long Island-based federal credit union carried with an initial interest rate of only 4.875% at the end of July. The mortgage guaranteed that this initial interest rate would stay constant for at least three years. Afterwards, the rate could change by no more than 2% every year (or, in some cases, every 3 years).

Other, for-profit lenders operating in Long Island at the same time, offered similar adjustable-rate mortgages with interest rates starting at around 6.375%, on average. That’s a difference of 1.5%. With the credit union, you’d be saving about $300 a month on a $350,000 home.

A comparable story applies to fixed rate mortgages. That same Long Island-based credit union from the previous example (specifically, Bethpage Federal Credit Union) offered 30-year fixed-rate mortgages with a 6.5% interest rate. This is virtually identical to the going rate for 30-year fixed-rate mortgages with other Long Island institutions, except that the credit union–unlike most for-profit institutions in Long Island–did not demand any additional fees to be paid upfront.

Credit unions are easy to join. To become a member, you generally have to pay a low initial fee (new member must pay $5 to join Bethpage Federal, for example). You also need to prove that you live, work, or own a business as part of whatever local community the credit union serves.

Local credit unions have seen increases in membership over the course of the past year. More significantly, they among the few financial institutions to have sold more mortgages this year than during previous ones. In a troubled economy, potential members are attracted to the credit unions’ low interest rates on mortgages, especially adjustable-rate mortgages. Moreover, credit unions–like local banks–have weathered the subprime crisis better than other financial institutions, and this attracts new members.

The only disadvantage of credit unions credit union lies, again, in their conservative nature. They do not offer as many options as you would find with a commercial bank or broker. However, if you are contemplating buying a home, credit unions are one of the best sources around for low-interest mortgages.

Low interest mortgages are diffilcult to come by and residents of the UK can have a free mortgage quote with glitec.co.uk. Also offering other finance in secured and personal loans.

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