Choosing between a credit union and a bank for your mortgage depends on your priorities. Credit unions typically offer lower rates, fewer fees, and personalized service but require membership. Banks provide a wider range of products and greater convenience but may have higher costs.
Credit unions and traditional banks function similarly but are separate entities with different operational approaches. The choice between which finance method individual loan seekers should choose depends on several factors, including interest rates, fees, and mortgage options.
While credit unions facilitated a total of $1.60 trillion in federally insured outstanding loans in the first quarter of 2024, the US Chartered banks (many of which rated as the best banks in the world) alone granted $5.92 trillion within the same period.
In this article, we will discuss credit union and bank mortgages, and illustrate the similarities and key differences between these two financial institutions widely available to loan seekers.
Key highlights:
Credit unions offer lower interest rates and fees than banks, but they offer a smaller array of financial products and services.
Banks often implement robust and advanced digital tools, and you do not have to be a member to request loans.
The decision to choose a credit union or bank for mortgage lending depends on the individual or business loan type.
Credit union vs bank mortgage: Which should you choose?
Credit unions and bank mortgages are the two most popular venues for getting a mortgage. However, it is important to compare the available choices before applying for a loan.
Credit union
Credit unions, also known as community banking, are predominantly member-owned financial cooperatives. They provide a variety of financial services, including mortgages, which is just one of the benefits of joining a credit union.
The key to a credit union is membership. As such, close to one-third of the entire US population is registered to a credit union. In the United States in 2023, there were more than 4,600 credit unions that provided loan services. The largest among them was Navy Federal, with $171 billion in assets under management (AUM) and over 13.3 million members.
One of the key advantages of obtaining a mortgage through a credit union is the personalized service. Besides, profits credit unions generate are returned to members in the form of lower fees, better interest rates, and improved services.
Personal loans can range from as low as $250 to $50,000, with repayment of up to between five to ten years. Businesses, on the other hand, can get up to $500,000, with repayment of up to 35 years. This may be a flexible repayment option for both individuals and businesses looking to benefit from credit union loans.
Lastly, most credit unions require no or little credit history before allowing their members access to credits. Moreover, some credit unions allow members to start borrowing immediately after completing the registration.
Type Interest Rate Term Navy Federal Credit Union Fixed rate 5.625% 10 years State Employees' Credit Union Fixed rate 5.550% 10 years PenFed Fixed date 6.375% 10 years
Credit union mortgage rates for a 10-year fixed-rate mortgage.
Bank mortgage
Banks offer extensive financial services, which include mortgages. However, they are primarily and almost exclusively profit-driven. Unlike credit unions, banks are open to the public and do not require membership. In the United States, there are thousands of banks providing mortgage services. The largest among them include JPMorgan Chase and Wells Fargo. These banks also have the highest total assets and customer deposits.
Applying for loans through a bank has many benefits. One of them is the variety of loan products they make available for credit seekers. Moreover, banks often have more advanced technology and online services, providing greater convenience for customers.
Like credit unions, you can also request a personal or business loan through bank mortgages. Most banks only permit personal loans starting from $1,000, while businesses are granted loans based on their needs and can start from a few thousand dollars to millions. Each of these loans also has its restructured repayments based on loan types.
Finally, banks usually require a good credit history before allowing their customers access to credit. Moreover, the application process for bank loans can be more stringent, requiring detailed financial documentation and credit checks.
Type Interest Rate Term Chase Bank Fixed rate 5.875% 15 years Bank of America Fixed rate 6.250% 15 years Ally Fixed date 6.875% 15 years
Bank mortgage rates for a 15-year fixed-rate mortgage.
Credit union vs bank mortgage: Head-to-head comparison
Some of the key differences between credit unions and bank mortgages are as follows:
Credit Union Bank Interest Rates Lower Higher Fees Lower Higher Membership Requirement Yes No Customer Service Personalized Extensive Brick-and-Mortar Locations Fewer More Mortgage Options Limited Wide range Digital Tools Basic Advanced
Membership requirements
For credit unions, membership is a deciding factor and usually comes with a price tag of roughly $20 to $25. Membership is typically based on certain criteria, like employment and geographic location. If you qualify, the benefits often outweigh the membership hassle. However, for banks, membership is not required. This makes their mortgage products accessible to everyone (as long as credit score requirements are met).
Customer service
Credit unions pride themselves on offering personalized customer service and using a community-focused approach. While banks generally offer efficient service, they often lack the personal touch. However, they make up for this gap with extensive customer service resources and better online banking tools.
Mortgage options
Banks generally offer a wider variety of mortgage products, including specialized loans for first-time homebuyers, jumbo loans, and government-backed loans. Credit unions may have fewer options but are known for their straightforward and transparent mortgage processes.
Digital tools and convenience
Banks usually lead in digital banking technology, offering robust online and mobile banking tools. These can include mortgage calculators, online application tracking, and virtual consultations. Credit unions may offer basic online services, but they often lag behind banks in digital convenience.
The bottom line: Is a credit union or bank mortgage a better option?
Choosing between a credit union or a bank when considering getting a loan requires careful consideration. It’s imperative to consider the loan types to make a decision that will not negatively impact your financial well-being. Either way, they each have their advantages, and the loans offered are different based on their services and cash liquidity.
Credit unions are able to grant a lower total loan balance than banks. However, they offer more personalized services and lower interest rates compared to banks. They also provide a greater savings rate on cash deposits, which can be a deciding factor in itself. On the other hand, you don’t have to be a member before you can request either a personal or business loan from banks.
If you are interested in other loan types, you can consider car title loans, which allow you to get a loan using a vehicle as collateral. However, be aware that this type of loan is mainly reserved for short-term money needs due to high interest rates.
