Should You Use Your Bank As Your Mortgage Company?

Both banks and mortgage companies offer good products in the home mortgage industry.

Both banks and mortgage companies offer good products in the home mortgage industry.

A decision to use your bank as your mortgage lender may reflect your personal preference rather than a careful consideration of banks vs. mortgage companies. Choosing your bank as lender, however, often is the best financial option. Most banks and all mortgage companies sell their loans into the secondary market, so their rates are often similar, if not identical. Your bank, however, may offer some advantages unavailable to mortgage companies.

Mortgage Company Drawbacks

Without the ability to offer checking or savings accounts, mortgage companies must look at you as a single-product buyer. They have little ability to generate and nurture long-term customer relationships. Unless you're an active real estate investor who is constantly buying and selling property, your mortgage company interacts with you only when you purchase a new home or seek to a refinance loan.

Bank Advantages

Along with a competitively priced mortgage, your bank can also offer all the financial services you need, including savings accounts, CDs, money market accounts, personal loans, auto loans, home equity loans and credit cards. You can build a relationship with your preferred financial institution.

Rate Considerations

Since most mortgages are sold into the secondary market, they all tend to "look alike" on paper. Therefore, the interest rate of the loan becomes becomes your primary focus. As mortgages are very large loans, seeking the lowest possible rate is critical. Lenders would love to sell mortgages at the highest rates possible, but competition forces lower rates. Your bank may be just as aggressive as a private mortgage company, offering interest rates equal to or less than those of other lenders.

Portfolio Loans

If your bank makes "portfolio mortgages" -- those that are not sold, but kept by the bank -- you may want to seriously consider the bank. For example, if you're a new medical school graduate or just obtained your Ph.D., you may have little income but a large amount of debt from education financing. You would never qualify for most secondary market mortgages, since your loan could not be sold with your currently bleak economic profile. But your bank, with whom you have a financial relationship, could give you the mortgage you need, believing that you'll be a responsible borrower. It can justify making the mortgage based on your long-term earning prospects.

About the Author

For 34 years Bill Pirraglia served as a senior executive in the banking industry. Since 2005, he has authored articles, blog entries, tips and advice columns, SEO web copy and two published books. He specializes in personal and business finance topics, along with legal articles for clients large and small.

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