Are Loyalty Rates a Good Idea for Borrowers?

Currently, the mortgage rates in the United States are hovering around 4.5 percent. Some are lower depending on the type of mortgage product you choose. But if you have a bank that also loans money for home purchases, you may be able to get an extra special rate designed specifically to keep your business.

Loyalty rates are the new thing in the mortgage industry among banks. Many banks are offering current customers who deposit a certain amount of money into their accounts each month a special mortgage rate that is lower than the current rates. This is in hopes of keeping the customer with that particular bank.

But this isn’t a completely altruistic action on the part of banks. By offering the lower rates, customers are more likely to keep and open other accounts with the bank. They may open a new savings account, an extra checking account or a business account so they can take care of all their financial needs at one bank. By taking out a mortgage through the bank, the bank can also learn more about the customer and market other products specifically targeted to them.

What does this mean for you? It means that shopping around for the best mortgage rates is more important than ever. You may need to become a customer of the bank for several months before you qualify for the loyalty rates, but it could be worth the wait if you could get a half a percentage point or more knocked off of your loan terms.

Unfortunately, this trend is moving around the United Kingdom right now and it has not made its way “across the pond” to the United States. However, if it picks up steam over there, it may be something that American banks will want to pick up on. After all, it is a pretty good idea and it gives home buyers another option of paying a lower interest rate despite the fact that they are at historic lows right now.

Would you join a bank if they were offering loyalty rates on their mortgage loans? Or is this just a marketing ploy to get more customers? Either way, if it makes it to the United States, it will probably be a popular plan and there will likely be hundreds of thousands of potential homebuyers that will take advantage of it.