When it comes to getting a mortgage, there are many things to consider. One of the most important decisions you’ll make is going with a credit union or a bank. Receiving a mortgage from a credit union in Canada will get you better interest rates, customer service, and more. However, there are some downsides. Here’s a look at some of the pros and cons of each so you can make an informed decision.
What is a Credit Union?
A credit union is a cooperative, non-profit association that provides financial services to its members. They operate in the same way as banks – by lending out deposits to other members. However, to join a credit union, you must purchase a refundable share that ranges between $5 and $200.
Credit union members can also vote on business decisions and receive profit distributions. The main difference between a bank and a credit union is credit unions are owned by members where shareholders own banks.
Credit Union Benefits
Credit unions have always been more customer-focused as compared to their larger counterparts. They are usually not as obsessed with the bottom line as banks, so often, they’re able to offer more competitive rates and terms. There’s also a community factor: Unlike banks, credit unions typically serve specific geographic areas and the people who live there — so borrowers might feel like their money is going back into their community.
Better Interest Rates
While banks are focused on profits, many credit unions operate on a not-for-profit basis. This means they are generally more concerned with providing the best rates and service to their members than offering shareholders attractive returns on their investments. This also means credit unions can often offer better mortgage interest rates than many major banks.
Better Customer Service
When you deal with a bank – especially one that has branches all over the country – you tend to run into a lot of bureaucracy. Credit unions, in contrast, do not tend to have as much red tape. They are smaller and often local in their focus. They can provide better service – from personalized advice to a better understanding of local homebuyer programs. Your local credit union will guide you through the application process to understand what’s expected of you from start to finish.
Easier Mortgage Qualification
Banks are very picky with lending, whereas credit unions have more flexibility when qualifying you for a mortgage. In particular, credit unions do not have the same legal requirements as banks with the mortgage stress test. This is the requirement for big banks to test your mortgage payments with a higher interest rate to see if you can still afford the mortgage.
Credit unions are also more likely to lend to customers with lower credit scores. Overall, the lending flexibility is great for first-time homebuyers building a financial foundation.
Simplify Your Banking
Although credit unions do not provide all of the same services as banks, they are still a great one-stop-shop for your financial needs. Most credit unions offer everyday banking, lending, mortgages, insurance, investment, and business services. Unlike working with a separate mortgage broker, financial advisor, and insurance company, you will have everything in one place with fewer fees.
Additionally, consolidating your financial services will help your lender provide better advice and speed up your application process. You need to prove your assets and home insurance to receive a mortgage. Having everything stored in one place will save the time of scheduling appointments with multiple people.
Credit Union Drawbacks
While there are many advantages to a credit union, there are some disadvantages. Credit unions are limited by their resources. As a result, credit unions have less product selection, fewer locations, and outdated technology compared to a bank.
In some cases, you might be restricted by membership rules limiting who can join a credit union. Certain closed-bond credit unions only accept those working in specific industries or organizations in Canada. However, today most credit unions are open to the public.
Less Product Selection
While credit unions offer many types of financial services, they usually don’t provide all the services you would find with a bank. For example, many credit unions do not offer home insurance. You may also be limited to smaller lending amounts with a credit union. If you are buying a multi-million dollar house, then your local credit union may not have the ability to finance you.
While most credit unions have their own branches, they are not as widespread as banks. Most banks have numerous locations in every community throughout the country – and even worldwide. If you are not located in a big city, you may need to drive out of the way to visit a credit union branch.
Big banks have more resources to invest in technology than credit unions. As a result, banks often have ultra-modern and sleek online banking platforms while credit unions struggle to keep up.
If your credit union offers mobile banking, it will likely only be for checking your balance or transferring funds. Some credit unions do not allow you to deposit cheques using your smartphone. However, the online banking technology for credit unions has been improving over time.
The big banks in Canada are insured by the Canadian Deposit Insurance Corporation (CDIC). If your bank fails, you will be protected up to $100,000 per account. However, credit unions are provincially regulated and are typically not protected by CDIC.
Instead, your credit union may have provincial deposit insurance. For example, the Deposit Insurance Corporation of Ontario (DICO) oversees credit unions in Ontario. This insurance will also protect your deposits up to $100,000. However, it would be best to make sure that DICO insures your local credit union.
The Bottom Line
It would help determine what’s important to you when choosing a mortgage lender between a bank or credit union, as the two options have many benefits and drawbacks. For instance, do you want to work with an institution that offers better interest rates? Or one that will lend you money even without a perfect credit score? Is a longer drive to a branch now an issue for you? If any of the above sounds like you, perhaps a credit union is right for you.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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