Credit unions are a part of Trinidad and Tobago culture so much so that in many communities it is considered quite odd not to have an affiliation with one or the other. There are many different credit unions to choose from but for the purposes of this comparison TriniRealty will look at TECU Credit Union, Eastern Credit Union, Public Services Credit Union and Venture Credit Union.
Despite the popularity of credit unions within the local financial services sector, when you think of getting a mortgage, most people think of commercial banks first and credit unions second. The following comparison uses several categories to help analyze the difference between getting a mortgage loan from a credit union as opposed to a commercial bank.
Documents Needed to Secure a Mortgage Loan at a Credit Union versus a Commercial Bank
The documents needed to secure a mortgage loan at either a bank or a credit union are much the same and they include;
- 2 forms of national identification
- Proof of employment
- Bank statements or other financial statements
- Deed title
- WASA Clearance Certificate
- A Valuation Report
- Completion Certificate (if new construction)
A Comparison of Interest Rates Charged
When it comes to comparing interest rates on mortgages between the two types of financial entities things can get a little tricky. Commercial banks quote their rates on an annualized basis whereas credit unions are in the habit of quoting a monthly rate. This means that a typical commercial bank mortgage rate may be advertized as 6.75% whereas a credit union mortgage rate will look more like 1% or even 0.75%. Simply looking at these rates without proper qualification can be grossly misleading. To equate a credit union rate to a commercial bank rate or average percentage rate (APR) you need to multiply it by 12 which represents the number of months in a year. Using the lower credit union rate quoted above 0.75% multiplied by 12 gives an APR of 9%.
Credit Union Interest Calculation versus Commercial Bank Calculations
Before you assume that credit unions are the much more expensive mortgage option you also need to consider that most commercial banks apply their lower rate on a fixed mortgage amount whereas credit unions calculate their interest on a reducing balance method. This means that while the credit union starts off with a higher rate, you may still end up paying less interest overall because every month the paid-off part of your principal is deducted before calculating your new interest figure. Of course, your decision to go one way over the other must use actual rates because the further apart these APRs are the greater the potential for savings.
A Comparative View on Mortgage Prepayments
Prepayments are allowed by both types of institutions but there is generally a more stringent approach to prepayments with a commercial bank. The bank may require notice in writing when you are making a prepayment from as long as three months in advance and there may also be stipulations on how much or how many prepayments you can make per year. Credit unions are much more relaxed in this sense and most allow any number of prepayments throughout the year.
Access to the Public
While anyone can walk into a commercial bank and be interviewed for a mortgage, you need to be a member of the particular credit union from which you wish to secure the loan before applying. Members must also have 10% to 25% (the percentage varies across different credit unions) of the value they want to borrow held at the credit union for the application can be processed.
It is important to know that there are many different mortgage financing options available, but it is even more important to make sure you have properly analyzed them before making your decision.