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CU System
CUNA economist: 10-year mortgages created by market demand
MADISON, Wis. (1/18/13)--With interest rates at record lows, more credit unions are offering 10-year mortgages as members become comfortable with shorter terms or seek to refinance existing loans, said a Credit Union National Association economist.

Credit unions are offering 10-year mortgages because of a changing market, said Steve Rick, CUNA senior economist.

"Some members prefer them over the 30-year mortgage, so [credit unions] are meeting the market demand," Rick said.

First Financial FCU, Wall, N.J., has begun offering a 10-year mortgage with rates as low as 2.5% and $599 closing costs.

"Shortening the term of your mortgage makes the single largest difference in the interest you pay, even more than a lower rate," said Alice Stevens, chief operating officer at First Financial FCU.

Greylock FCU, with $1.1 billion in assets, Pittsfield, Mass., offers a 10-year mortgage with an annual percentage rate as low as 3.75%, according to its website.

In September, Amoco FCU, a $589 million asset credit union based in Texas City, Texas, offered a 2.75% interest rate on 10-year mortgages (News Now Sept. 20).

CUNA's Rick noted other reasons credit unions offer 10-year mortgages:

  • Have less interest-rate risk when  rates rise because more principal is amortized each month and therefore reprices at the higher interest rate;
  • Have less credit risk because loan balances are usually smaller and borrowers usually have better ability to repay; and
  • Have less liquidity risk due to the greater amortization of principal each month.
"A 10-year mortgage will have more interest rate risk compared to a four-year car loan or an adjustable rate credit card loan," Rick said. "But it will have less credit risk because of the secured nature of the loan."
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