Credit Union vs. Bank Mortgage: Which Should You Choose?


Credit Union vs. Bank Mortgage: One option is to choose the first option that comes up, while the other is to select the top result based on the relevance of the search you are performing at the moment.

Some of the important elements homeowners should take into account while deciding between credit unions and banks in search of a mortgage will be covered in this article. Though both of these financial institutions offer similar house loans, when one is looking for a mortgage, one should be aware of some differences between credit unions and banks. This article helps consumers choose an appropriate mortgage lender by contrasting credit union mortgages with bank mortgages depending on interest rates, fees, customer service, and more criteria.

What is a credit union and what is the difference between a credit union and a bank?

A credit union is thus a non-profit organization that is owned by its members with the main objective of providing credit facilities. Credit unions work similarly to banks as they offer checking/savings accounts, automobile loans mortgage loans, etc however, they are a whole different kettle of fish when it comes to their structure. Credit unions are non-profit organizations, which are provided for and managed by their shareholders. Dividends are paid back to the members in the form of lower service charges, higher saving interests, and lower borrowing rates.

There are often strict requirements of association and in most cases, the new member has to be affiliated in some way with the other members, through say employer, geographical location, or association. You have to meet the credit union’s field of membership to be part of it. However, if a member, one can get all the products as well as services you need in your life.

What is a Bank?

A bank is a business that is in the business of providing financial services to the public and it is owned by individuals through share purchases. Consequently, banks need to seek the maximum profit to bring value-added for investors. As with credit unions, they deliver mortgages, accounts, credit cards, and other services to their members. Unlike credit unions where a person has to be affiliated with any of the organizations that are associated with the credit union, anyone can be a bank customer.

Comparing Mortgage Rates

Interest rates are usually a paramount concern to borrowers when sourcing for a mortgage. But how does the current credit union compare to bank mortgage rates? Overall, rates tend to be slightly lower at credit unions for a couple of reasons:

• While writing about credit unions one must remember that these are member-owned nonprofits that don’t have profit margins and shareholders to satisfy. This enables them to charge lower prices to their customers than other insurance companies.

• There is also the issue of overhead costs where credit unions can afford to offer more competitive mortgage rates since they do not have to fund large branches like the large commercial banks.

However, banks especially the community obscure ones, may at times have very sharp mortgage rates too. Lastly, it becomes apparent that the rates depend on the individual lender. However, it is generally expected that the rate at credit unions will be slightly lower than conventional banks by about 0.05% – 0.20%. What this means is that when you are borrowing $250,000 for your home you would save between $100 to $400 in interest per year when using a credit union mortgage.

Mortgage Fees

Besides the nominal interest rate charged on the mortgage loan, other costs such as those related to fees significantly add to your total cost of borrowing. These may include:

• Bank charges – The cost of starting the mortgage process. Sometimes it may be around 1% of the total of the loan.

• Tuition fee – For every course and each semester A Non-refundable Application fee of 75 USD is required to be paid for the initial application process. Typically under $100.

• Points – A pre-paid interest rate that is not credited to the borrower’s account Prepaid interest– This is another form of points that is also charged to close the mortgage transaction. Routinely, a loan origination fee can range from $200 to 500 dollars or an average of 2% to 5% of the total loan amount.

• Points or prepayment penalties – Costs that the borrower has to pay to pay off the loan before the agreed maturity date.

When assessing total fees when comparing various mortgage lenders, make sure to take the least amount of total fees. As with overall fees, credit unions will typically offer lower prices than other conventional banking institutions. Why? Unlike other financial institutions such as banks, these organizations are member-owned nonprofits, and therefore, their focus is not on making profits through charging fees. It’s about 1000usd in total mortgage fees better to choose a credit union than a bank.

Customer Service Experience

Just like the cost, the experience of the customer is of paramount importance when obtaining a mortgage. This is one of the biggest pluses of credit unions compared to those large banks that are not close to the members. Another significant advantage – credit unions are member-oriented organizations, meaning that they are particularly good at customer service and assistance. Here, you will be with a specific mortgage officer who will be able to assist you with the various aspects of the home-buying process.

While you can find a large number of customers seeking for personalized approach and high-quality services big banks can offer, they do not possess as many possibilities for individual approaches as they are concentrated on volumes and shareholders’ profits rather than customers’ loyalty. At the same time, the private domestic banks, which can be considered as the smaller community banks, provide significantly higher service quality.

While comparing and selecting your mortgage, remember that besides the interest rates available, there are opinions and feedback regarding the quality of service provided by the lenders. It’s so important to have the right support during the stressful process of a large financial transaction like a home purchase.

Accessibility of Branches/ATMs

In case the interaction with physical bank/credit union locations is relevant in your location, consider accessibility as well. It’s convenient because large national banks are located all over and have ATMs available to get cash at any time. However, credit unions and community banks are significantly less sprawling – they can be as big as a single branch or a certain district.

However, the advancement of technology is now pushing physical access to be less important than before. Many credit unions and even community banks provide a great set of online/mobile banking options, including bill pay and many others. Since customers are not limited in terms of physical branch accessibility anymore, location becomes irrelevant in most cases nowadays if digital access is sufficient for the customer’s needs. However, if you still wish to do physical banking, then look at the branch/ATM location pros near where you live and work.

Who to Borrow from: How to Choose the Right Mortgage Lender

In this article, we explore the factors that may help guide you toward a better decision in choosing between a credit union or bank mortgage. Again it is subjective according to different people’s preferences and their ability to make financial commitments. Here are a few key questions to help determine if a credit union or bank may be a better mortgage provider for you:

• Is membership convenient? If, for instance, credit union access is too selective or difficult, the formation of an account in a bank may be more convenient.

• What level of sensitivity can you afford about costs? It is a significant amount of money for some borrowers because many of them are first-time buyers. If this is the case, then the lower rates and fees are going to make the overall balance of credit unions favorable.

• If you appreciate specific attention to yourself and an individual approach If having an available mortgage officer to contact directly is a necessity, then credit unions are an option that can be relied upon.

• Is access enough?: Digital access in the context of information searching and existing opportunities. If you are heavily dependent on internet banking/ smartphone banking, then branch location/branch strength is not a consideration that weighs heavily in your decision.

But most importantly – always compare rates from different insurance companies before deciding! Review samples and compare loans from area credit unions and other banks, including community banks. Hence, although averages provide an indication, actual rates and fees are more specific. But pre-approvals allow you to vet actual loan options with side-by-side comparisons before making your mortgage lender choice.