Everything you need to know about Costco mortgage rates and refinance options
Costco might not be your first thought when determining where to shop for a mortgage. But, as incredible as it may sound, this big-box store offers first-time mortgages, refinancing options and jumbo loans through Costco Finance. The products are available for members and non-members.
Costco’s mortgage services can be initiated online, then finalized through phone contact with a representative.
Costco lending is a multi-lender marketplace where consumers can choose from a variety of lenders and loan options. Costco doesn’t actually sell you the mortgage, rather, they work with First Choice Mortgage, who can connect you with a network of lenders that fit your needs best. First Choice Mortgage currently works with the following lenders:
- Bank of the Internet USA
- First Choice
- Cap West
- J.G. Wentworth
- Erates Mortgage
First Choice Bank is leveraging Costco’s loyal and enormous customer base to earn a larger stake in the mortgage industry. Costco Finance is leveraging First Choice Bank to tap into a new industry and offer more value to their customers. This partnership is a win win for Costco customers – members can cash in on some exceptional perks.
When does it make sense to use Costco?
The multi-lender marketplace might be a new concept to you, so you might wonder why you wouldn’t work with one of these lenders directly, and cut Costco and First Choice out of the equation.
One reason is the perks that are offered to Costco members. For instance, if you are an Executive Member, the loan origination fee is capped at $350. For Gold Star or Business-level members, the most you’ll pay for an origination fee is $650.
For comparison, most loan origination fees are around 1% of the total loan amount. So, if you needed a loan for $300,000 you would expect to pay $3,000. If you are an Executive Member, this scenario means Costco financing would save you $2650 in origination fees.
Of course, shopping around is always a wise strategy, but if you are a Costco member this perk, can save you thousands of dollar, therefore, lowering your overall breakeven point.
As surprising as it may seem, Costco mortgages are a successful program for this wholesaler. Mortgages are available for non-members and members alike. (Photo/Wikimedia Commons)
What type of loans can Costco connect you with?
Because of the multi-lender marketplace platform, Costco finance is connected with a variety of lenders. You could (accurately) assume that Costco offers a wide-variety of home mortgage products like traditional 10, 15, 20 and 30-year fixed rate mortgages and adjustable rate mortgage loans. Borrowers can select between purchase or Costco refinance loans. Line of credit programs like a HELOCs are also offered. Here are some specific programs:
FHA loans are backed by the Federal Housing Administration and are designed to protect the lender. Qualifying terms with an FHA loan are usually more relaxed than conventional loan terms.
This type of product is insured by the United States Department of Veterans Affairs (VA). In most cases, eligible borrowers of a VA loan will not have to pay a down payment or mortgage insurance. Interest rates can also be lower than other types of loans. If you qualify for a VA loan, it’s especially important to compare your options. Look to banks like USAA or Navy Federal who specialize in VA loans.
You would consider a Costco jumbo mortgage if the value of the loan you need exceeds conforming loan limits established by regulation. In most of the country, the 2017 maximum loan limit for one-unit properties is $424,100. High-cost areas like Hawaii and California could have loan limits as high as $636,150.
A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans.
Additionally, Costco offers streamline refinances and the HARP 2.0 program for underwater borrowers.
Because of the variety of lenders, loan sizes can range greatly. Some sources indicate a range from $75,000 up to $10 million. Qualifying terms will vary by lender and borrower.
Current Costco refinance rates
Costco financing services the entire U.S. including Washington D.C., the U.S. Virgin Islands, and Puerto Rico. The broad service range, and the fact that costco doesn’t issue the loans means that current Costco refinance rates will vary greatly.
As a rule of thumb, refinance rates commonly depend on these factors:
- Credit Score
- Home location
- The size of the loan
- How much you’re able to put into a down payment
- Loan terms
- Loan type
The best way to get a rate estimate is by starting the application process online or calling to speak with a representative directly.
How does it work?
First Choice Loan Services, handles the initial customer lead. From there, First Choice works with a variety of lenders who all offer a wide-variety of mortgage loan products, each at slightly different rates and terms.
What are the first steps?
To get the ball rolling, all you have to do is start an online application. The form starts by asking questions about your current loan. You also have the opportunity to enter your Costco membership number so you can access very specific quotes to your situation.
After you request quotes so you can compare Costco mortgage rates, points, fees and terms for different lenders. You can request email summaries from up to four lenders at a time.
One Costco mortgage review claims they were contacted by a Costco mortgage lender minutes after they submitted their request – this shows prompt customer service.
Because Costco conducts the majority of their business online, their website has a state-of-the-art mortgage application system, and even offers mobile capability. Many banks have dated technology, so this is a breath of fresh air for those looking to go through a good chunk of their mortgage process online.
Downfalls of Costco mortgage
The trade-off for a digitally savvy lender is the lack of physical locations. If working with a representative face to face is important to you, Costco will not be the best lender for you.
While non-members can also reap low-cost benefits from this program, the true motivator to use Costco is for the capped loan origination fees. If you aren’t a member, it might make even more sense to shop around.
How does Costco mortgage rates compare to other mortgage lenders?
It’s difficult to do a true comparison of First Choice Mortgages to other banks because the terms will vary so greatly, so you will need to do a little legwork if you want to compare the Costco mortgage rates to other banks.
It’s always wise to check out the different product offers of local and national banks, as well as mortgage brokers, credit unions and search services such as RefinanceMortgageRates.org When comparing banks, don’t miss to examine the fine print on your loan documentation. These important details will paint the truest picture of which lender is right for you.
Common tools to compare lenders include:
A refinance calculator
Use a refinance calculator to add up all costs of a refinance. You can use this tool to estimate several things: if a refinancing will save you money, and which lender can help you out the most.
Calculating specific costs will help you weigh the differences in offers. When you weigh the differences between interest rates and closing costs you will see, the best choice isn’t always obvious. .
A breakeven calculator
Refinancing, like a new home purchase, comes with additional costs such as application, appraisal and closing fees. These expenses can offset the price of your refinance, so it’s important to calculate if these costs are worth it to you, this figure is known as the breakeven point.
Calculating your breakeven point is relatively simple – here is how you do it. If your refinance costs total $5,000 and a Costco mortgage refinance will save you $200 a month, your calculation would be:
$5,000 ? $200 = 25 months until you break even.
This figure tells you how long it will take you to pay off your refinance.
If there is a potential that you will move, or pay off your loan before you’ve recouped the costs of your Costco mortgage refinance, it might make sense to forgo the refinance.
Picking the right lender or broker to work with can be tricky. It’s important to identify what matters the most to you in a refinance before settling on the appropriate lender. With enough research and time, you’re sure to find someone that fits your financial needs perfectly.