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When you're ready to take out a mortgage to buy a home, you'll need to choose a lender. You may have many from which to choose, but certain lenders might offer additional perks. Some lenders try to incentivize customers to choose them by offering a relationship discount.
Relationship discounts on mortgages are special loan terms financial institutions offer if you have other types of accounts with them. For example, the savings might come in the form of a lower interest rate or reduced fees on your loan. Lenders offering relationship discounts may require steep minimum asset requirements to be eligible, and switching banks to get this discount may not always pay off. Here's what you need to know about relationship discounts and whether they may be worth it for you.
How Relationship Discounts Work
With relationship discounts, mortgage lenders offer perks to customers who also bank with them. These can typically be utilized by someone who's already an existing customer or someone who switches banks to get the discount.
Here are three examples we found, which illustrate the types of discounts and requirements you might encounter:
- Chase waives up to $1,150 of loan processing fees for customers who have a minimum amount of money in deposit or investment accounts (the discount is $500 off if you have $150,000 to $499,999 with Chase, or $1,150 if you have $500,000 or more). If you have $500,000 or more in existing funds with Chase, you can also qualify for a discount on your interest rate: If you have $500,000 to $999,999, you'll knock 0.125% off your mortgage rate, and if you have $1 million or more, you'll get a 0.25% rate discount. If you add new deposits, you can also score a discount.
- U.S. Bank offers perks to customers who use them for personal checking. You must have a checking account open with at least $25 deposited. You can get up to 0.25% of your loan amount deducted from closing costs, up to $1,000.
- Bank of America offers discounts on mortgage origination fees. To get a $200 discount, you must have an average daily balance in your BofA account between $20,000 and $50,000. There's a $400 discount for customers in the next tier with up to $99,999 at the bank. For the max $600 discount, you need $100,000 or more in your bank accounts.
Pros and Cons of Relationship Discounts
Before you pursue a mortgage relationship discount, make sure you're familiar with the potential pros and cons.
Pros
- Savings: If you score a relationship discount, you might save on closing costs, or even better, land a lower interest rate that reduces monthly payments over the life of the loan.
- Streamlined finances: If you have your mortgage at the same institution where you already have savings and investments, or you bring your money over to a new lender, it may be easier to have everything in one place.
Cons
- Steep entry point: While not always the case, some relationship discounts require having large deposits with the institution.
- Hassle of switching banks: If your bank doesn't offer relationship discounts, you could switch to one that does. But this requires opening new accounts and transferring money, then closing your old accounts, which can be tedious—especially if you're moving large sums or having to sell investments. It may not be worth it for minor savings.
- Not always the best deal: Say you go out of your way to get a relationship discount on a mortgage so you can get $1,000 knocked off loan fees. If your interest rate isn't impacted, and you're only selecting that lender because of the fee discount, it's possible you're not getting the best interest rate for the best overall savings.
Other Ways to Save on a Mortgage
Relationship discounts are far from the only strategy at your disposal to save money on a mortgage. Here are some other tactics that could reduce fees or interest rates on home loans even more:
- Improve your credit. The higher your credit score, the more likely you are to qualify for a mortgage with lower interest rates and fees. If you're not sure where your credit stands, you can check your credit score and credit report for free with Experian.
- Compare mortgages. Take the time to compare loan terms with at least a few lenders to make sure you're getting the best deal. Some personal finance websites allow you to compare many different loans at the same time. You could also use a mortgage broker who can compare options and help you save.
- Make a larger down payment or shorten your loan term. Either of these options might result in lenders offering you a lower interest rate.
- Buy discount points. These are a form of prepaid interest, and by paying them upfront when you take out your mortgage, you can lower your loan's interest rate, which could save you thousands of dollars over the life of the loan.
- Negotiate closing costs. Some lenders are willing to cover certain closing costs, and in some cases, home sellers will pick up expenses. Talk to your real estate agent and lender to find out if there's any wiggle room.
Relationship discounts can make sense, such as if you already bank with that institution and can earn significant savings. But if you'd have to switch all of your banking for a small discount, or if you don't already have a large balance in checking or savings, there may be better ways to save on a mortgage.