Cheaper Home Loans from Smaller Banks and Credit Unions

Published by nora | Filed under Buyer / Seller Tips, Market Trends, Mortgage / Finance, Real Estate, Shout Outs

Home loans are now cheaper, as mortgage rates continue to fall. According to Freddie Mac, the 4.44-percent average rate for fixed-rate 30-year mortgages on August 12 was the lowest rate recorded by Freddie Mac since it started monitoring mortgage rates in 1970. The rate also marked a sharp plunge from 5.07 percent in January.

But you can find even cheaper home loans from smaller banks, regional banks and credit unions. As examples, Heartland Bank in St. Louis is offering a mortgage rate of 4.5 percent, Rockland Trust in Boston is offering 4.13 percent and Acacia Federal Savings Bank is offering 4.25 percent. You can get these low rates without paying for the so-called points that lower rates. You can visit financial websites like Bankrate.com and Lendingtree to check local banks offering the lowest rates.

Analysts say that smaller banks are offering lower rates in order to capture a higher share of the mortgage market. Big banks like Bank of America, Wells Fargo and JPMorgan Chase are already enjoying a huge portion of the market, so they’re not pressured to lower their rates to attract borrowers. These three banks captured 56.5 percent of all new mortgages made in the first half of 2010, a high jump from 36.6 percent in 2007. The average mortgage rate they’re offering in the second week of August for fixed 30-year mortgages was 4.66 percent.

There are other factors why smaller banks can offer lower mortgage rates. One is the built-in advantage of their size. Since they’re small, they can cut overhead costs more quickly and convert cost savings into lower rates. They also accept lower profit margins in order to increase loan volumes. In the first quarter of this year, profits from mortgage loans originated by independent mortgage lenders decreased to $606, down from $1,808 in the first quarter last year, according to the Mortgage Bankers Association.

Another factor is compensation for loan officers. Smaller banks tend to pay loan officers on commission while the big banks pay them salaries regardless of loan volume. With lower wage costs related to mortgages, regional banks have more flexibility in reducing loan rates.

The credit union that has been topping all others in extending home loans to its members is the Navy Federal Credit Union. It has committed $7 billion in new mortgages and refinancing to members in 2010, higher than the $6.2 billion mortgages it made in 2009. As of August 16, its rate for 30-year conforming loans is 4.25 percent for applications with discount points of 1.25, and 4.375 percent for applications with a 0.25 discount point.

Since credit unions are non-profit and have the mandate to serve their members, most of them offer lower loan origination fees, loan rate lock options and biweekly payment plans. They have no prepayment penalties, no underwriting fees and no private mortgage insurance for most conventional home loans.