How Credit Union Mortgages are Changing the Game for Millennials

One quick Google search will show you what millennials supposedly cannot afford:

Basically everything — especially a house.

And it’s no wonder the future looks so bleak for us. In nearly every part of the country, home prices are rising significantly faster than wages; home price appreciation is increasing by 6.7% annually, while wages? In 2018, the average hourly earnings increased by a measly 3.2%.

This trend isn’t new. The gap between home prices and median wage has been steadily increasing. In fact, Deutsche Bank is naming the continued increase in wealth inequality and income inequality as the #1 risk to the market in the coming year. (Looking at you, Jeff Bezos.)

And millennials?

Well, we entered our 20s and 30s during the worst of it. In nearly 60% of cities, renting a three-bedroom property is less expensive than purchasing a median-priced home.

What Does it Take to Own a Home?

Every year, the National Association of Realtors (NAR) publishes the Housing Affordability Index, which measures whether the median income is enough to qualify for a mortgage loan. The lower the Housing Affordability Index number, the less affordable homeownership is.

So where are we at now?

In 2017, Housing Affordability Index was at 166.2. Not great.

But in 2018? That number fell even further to 143.8.

What that means is that it’s increasingly difficult to qualify for a mortgage unless your household income is upwards of 77K.

But it’s not just about the price of the home itself. It’s also about rising interest rates.

“The main reason for the decline [in homeownership] is the one-two punch of rising home prices and increasing interest rates, which have made borrowing money more expensive in 2018,” George Ratiu, director of quantitative and commercial research at NAR told Buzzfeed News.

In recent years, interest rates for mortgages have risen as high as 4.9% — over a 1% increase from 2016.

Doesn’t sound like a lot? Do the math, and that 1% difference could leave you paying over $30,000 more in interest on a 30-year mortgage.

But the dream of homeownership still exists in our millennial hearts. So how are millennials making it happen?

Bank vs Credit Union Mortgages

For millennials with low wages and a lot of student debt, large monthly payments just aren’t an option. So those high interest rates from bank mortgages can be killer, even if you’ve saved up for a decent down payment.

And all that student debt has taken a serious toll on millennial credit scores, which on average hover in the fair range from about 580 to 669.

Mix those high interest rates and poor credit scores with rising wealth inequality and boom: you’ve got a generation full of perpetual renters.

Some millennials, however, are finding new ways to become homeowners and encourage wealth distribution.

The key? Credit unions.

The benefits of credit union mortgages are two-fold.

1. Mortgage Rates

Remember how big of a difference a 1% lower interest rate could make? Often, credit union mortgages have interest rates an entire 1-2% lower than many banks.

That means in interest alone, a credit union mortgage could save you thousands of dollars over the course of a 30-year mortgage.

2. More Savings

In addition to the savings you can make through lower mortgage rates, you can also save money through lower fees and higher interest rates on savings accounts.

The reason credit unions can provide lower fees and higher interest rates is because credit unions are member-owned, unlike banks.

So, instead of the bank being owned by a bunch of men in suits who profit off of charging you fees and interest, the credit union is owned by you and the other members.

Credit unions, then, are essentially not-for-profit financial institutions. Because no one is profiting off you, any fees and interest you do pay goes right back to your own community.

Remember how the Deutsche Bank named the continued increase in wealth inequality and income inequality as the #1 risk to the market? Well, by getting your mortgage through a credit union, you’re not only saving thousands of dollars — you’re encouraging wealth distribution instead of helping the rich get richer. It’s a win-win.