Unique Mortgage Products Increasingly Offered by Credit Unions

To maintain high loan origination volumes and combat rising interest rates and increasing home values, many credit unions are offering non-traditional mortgage products. These are designed to provide members with lower monthly payments and more flexible payment schedules.


Offering non-traditional mortgage products is one way for credit unions maintain high volumes of loan origination.

These products provide more flexibility to members with lower monthly payments than a traditional 30-year fixed rate. They also offer various strategies to pay off equity in their houses.

Common non-traditional mortgage product offerings include interest-only mortgages, hybrid adjustable rate mortgages (ARMs), balloons, and 40-year mortgages. Additionally, the Option ARM is a new product from banks and thrifts not yet offered by credit unions. It will allow members to choose from four payment types each month.

Credit unions are training staff to work with members to discern which non-traditional mortgage type is most appropriate for their background and financial situation. The chart below shows payments during the first year on a $200,000 mortgage.

Credit unions are beginning to seriously consider these alternatives to provide their members with choices in the midst of a rising-rate environment.

Frank Nothaft, chief economist for Freddie Mac, predicts that 30-year rates will rise to the six percent range by the end of 2004, while housing values will appreciate by 8.6 percent for 2004 as a whole.

Case Study: State Employees Credit Union
State Employees Credit Union in North Carolina has generated $6 billion with a unique mortgage offering. It rolled out its own two-year ARM in 1993. The product is a 2/1/8, which means the interest rate can increase up to one percent every two years with an overall cap of eight percent over the beginning rate.

The credit union created a niche product and avoided direct competition with large lenders who offered different duration periods and rates. State Employees promotes the product through member education.

“A typical member in most credit unions or other financial institutions comes in with the opinion that the fixed rate is the best option. It takes a little time to train the staff so they can confidently explain the product and then educate members that it is a good loan,” said Phil Greer, senior vice president of loan administration.

The 2/1/8 has been successfully in place for over a decade. It will continue to contribute heavily to State Employees’ balance sheet.

More information about these mortgage products can be found in Callahan & Associates’ Market Update on Non-Traditional Mortgage Offerings.

This independent Callahan Research made possible by Sponsorship:




Sept. 20, 2004



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