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Mortgage: home town bank with slightly higher rate vs large bank with lower rate?

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  • Mortgage: home town bank with slightly higher rate vs large bank with lower rate?

    Long time WCI reader. First time homebuyer on Eastern side of Pennsylvania. Family/financial situation stable and mortgage < 1x 2019 income (although 2020 will be reduced from COVID). Have been in the process of shopping mortgages through WCI/Physician philosopher/local lenders/real estate agent recommendations, etc...
    -Current best offer: 2.875% fixed 15 year rate at a local bank with no processing or additional lender fee. Bank was recommended by my real estate agent who happens to be family friend for 25+ years and has used this bank for her own mortgage, her kids mortgages, and has great relationship with the bank's mortgage VP throughout the process. So given her own family mortgages she has clearly endorsed their product and knows their service level (and there is no kickbacks or anything along those lines). I have no previous relationship with them other than applying for this mortgage. After lots of comparison shopping, had started moving forward.
    -New offer: in the 11th hour after I made decision to pursue local bank, SunTrust got back to me with 2.625% fixed 15 year with $995 processing fee. Have not spoken to the representative yet and plan on doing so tomorrow (got info from one of the physician website recommendations).

    I'm curious thoughts of the group on which to pursue as I think they are both fantastic options so no wrong decision given those rates. Suntrust is obviously cheaper if math correct (~68/month = 816/year = 12,240 for full 15 yr) but does have initial extra ~1k fee, there are no local branches to do things in person and there is no relationship with my real estate family friend if that matters. Not sure how much additional business I'd do in the future with the local bank but my guess would be minimal. I guess my question to the group is how much some of those other factors matter or does it really come down to price and that's it. ~12k less the processing fee difference is significant but it certainly won't make or break our financial future (~2 weeks of current take home pay) over that timeframe...plus the difference may be even less if we pay off mortgage early and FIRE.

    Thanks

  • #2
    went through something similar when we bought our current house. The local bank is run by people we know and we want to support them and stay local. But they couldn't get 0.5% as close as the national bank. So we went cheaper and national. We use the local bank when we can but we aren't going to pay a lot more to do that.

    On the flip side, our mortgage has now been sold 3 times in the past 2 years, so that's super annoying and wouldn't have happened, most likely, if we had gone with them.

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    • #3
      The math favors Suntrust. I wouldn't deduct points not having a branch local to you. My lender is on the other side of the country. I get everything done with the website, email, & phone.

      Emotion favors the local bank.
      $1 saved = >$1 earned. ✓

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      • #4
        SunTrust (now “Truist” after their merger with Branch Bank & Trust) likes to keep the mortgages they originate. That plus a lower rate and cost would favor Truist.

        Give the local bank a chance to match your other offer, but do what makes financial sense.

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        • #5
          Anything else you get from using the local bank? My local bank puts you in there "elite" club if you hold a certain amount with them or hold a mortgage. Honestly that status is not worth much. Free checks and no ATM fees. Maybe some other discounts and some preferred rates. Oh and invitation to a picnic in the summer.
          but with the math so close some minor things might make the difference.

          Sounds like you could go either way. I would do whatever is easier at this point.

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          • #6
            Pit the two lenders against each other. Art of the deal. Never accept your first offer. If anything, you may get SunTrust to alleviate the processing fee, or ask SunTrust for 2.5%. What's the worst that can happen? They may say we can't do that, or they just may say yes. Wait a few days between correspondencses, make their rep sweat for your business. Especially in times like these, physician business is more important to them. If it's an option for you, a 10 year fixed may have a better rate - I did that with my last loan.

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            • #7
              I typically go with whichever is going to be better for me financially in the long run. In my 5 years of home ownership, I've never had to contact my mortgage company for anything. I just refinanced to another company and I don't foresee that I'll have to contact them for anything, either. If I knew people at the local bank or lived in a smaller town then I'd go with the local bank if they rate matched.

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              • #8
                The rate difference is pretty clear. Is your local bank going to retain your mortgage or package it?
                The advantage is only in the future. If they own it, they can approve any changes or addendums. If it is sold, basically a new loan is required. Basically, the bank’s loan committee simply approves. Very rare that you need it, but it greatly cuts the red tape.
                The numbers are close, I know you don’t plan on doing much more business. Not sure if having a good local bank serves the community. Your business counts in the long run. I like local options. I would consider it only for that reason.

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                • #9
                  Had a similar situation. We went with the local option at .125% higher rate but as a portfolio loan that they would hold and not sell. The convenience factor of avoiding having the mortgage repacked and sold multiple times has been worth it.

                  It’s still definitely worth pushing the local bank for a lower rate. Sometimes they’ll come down a bit if you open up another account, hold a certain amount of cash with them, or set up some direct deposit options.

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