Small Loans Could Be Big Business

Zillow mortgage research shows that many small borrowers will pay 10% more for every dollar borrowed than a borrower with a $400,000 loan.

 
 

A recent article in National Mortgage News (May 18, 2015) provided information from Zillow that said “Smaller Loans Cost Borrowers More”. Fewer lenders want to make smaller loans because there is less profit in them. And the article goes onto to state that since there is less competition for these loans, lenders charge higher interest rates. The article indicated that Zillow research showed that for loans less than $100,000 a borrower will pay 10% more for every dollar borrowed than a borrower with a $400,000 loan.

Sounds like an opportunity to be memberlicious! Read on!

Now I get it. Bigger loans don’t necessarily cost more to make. You do the same processing, order the same services, do the same underwriting, etc, etc (unless you are in the jumbo world). But because they are bigger, there is more money to be earned from a gain on the sale of the loan or the interest income from placing the loan into portfolio.

And as Credit Union’s we’re not for profits, but we are not charities. We need to make money to stay in business. But the idea of telling a member-owner that we can’t help them buy a home because they aren’t buying a big enough home or a nice enough home or an expensive enough home is an atrocity to me.

Click over to the Mortgages Are Memberlicious blog to finish reading about how Mislansky's credit union handles small-dollar mortgage borrowers.

 
 

June 3, 2015


Comments

 
 
 
  • I think it has to do more with credit score than size. Bigger loans tend to have higher credit scores, otherwise the bigger loan would not be made.
    Anonymous