Little-known mortgage savings tip: relationship pricing

Victor Polich
Posted by Victor Polich
Mortgage Banking

When shopping for a mortgage, there is one question in particular you might not think to ask a potential lender.

couple_meet_banker_cropThe common questions, of course, are: What’s the interest rate? What are the terms of the loan? How much are the closing costs? When will the loan close?

But there’s another question that I always remind friends to be sure to ask: “Do you offer relationship pricing?”

Two major categories of lenders

Lenders fall into different categories: Two broad types are transactional lenders and relationship lenders. Transactional lenders may not offer financial services other than mortgages. A relationship bank, on the other hand, usually provides multiple products and services, such as mortgages, checking and savings accounts, mobile banking, and credit cards.

This brings us to what is called “relationship pricing,” which may benefit you. With relationship pricing, a bank essentially says, “You have a relationship with us that we value. To show our appreciation, we want to give you a discount on our products and services based on your being a valued customer.”

Relationship pricing: An example

For a prospective homebuyer, this could mean potential money saved on a mortgage.

Here are 4 questions you may want to consider related to relationship pricing:

1) How much money am I potentially saving? For example, a reduction of 0.125 percentage points on a $250,000 mortgage could amount to a savings of more than $200 a year. On a $250,000 30-year, fixed-rate mortgage, the monthly principal and interest payment would be $1,194 at 4%. On that same loan with a rate of 3.875%, the monthly payment would be $1,176 — a savings of $6,480 over the 30-year life of the loan.

2) What do I have to do to potentially receive the discount? Ask questions and make sure you understand what the bank considers a relationship and what added services are required to receive relationship pricing.

3) Does the bank meet my needs? Get a good feel for the bank and its services to assess whether the bank is a good fit for you. You may not want to open a checking account, or agree to a host of products that aren’t valuable to you, just to save money on your mortgage.

4) What other potential fees are there? Saving money on your mortgage is one thing. But what if the fees associated with the services you sign up for end up offsetting the mortgage savings? The key is to ask questions so you understand what you’re getting and what you’re saving, so you can decide if the full relationship with the lender benefits you financially.

As you shop for a mortgage, add relationship pricing to your checklist of considerations for possible savings.

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