Is a bank, a credit union or an online lender cheaper for a home equity loan?

Summary

None of the three is cheaper by definition. What changes with the type of lender is who is allowed to apply and how the lender handles closing costs, and those two things often matter before price does. The only way to see which one is cheaper for your house is to get quotes for the same amount and term, which for a closed-end home equity loan arrive on a standard form built for side-by-side comparison.

Two banks, the same $50,000 loan

U.S. Bank's sample payment on $50,000 over 120 months at 7.40% is $590.90. Regions Bank's sample on the same amount and term, at 6.75%, is $574.12. That looks like $16.78 a month, or $2,013.60 over ten years, in Regions' favor.

The two numbers rest on different assumptions, though. U.S. Bank's 7.40% assumes a second-lien loan of $50,000 to $99,999, a loan-to-value ratio no higher than 60%, and autopay from a U.S. Bank account. Regions' 6.75% is the bottom of a range that runs to 13.75%. Both are prices for someone who meets a lender's best conditions, and neither one is a quote for you.

A lender has to lend where you live

Banks tend to stay inside their branch footprint. Regions requires the home to be "located in a state where Regions has retail branches," and it won't lend on investment properties or manufactured homes. U.S. Bank's qualifying rules start with living in a state with a U.S. Bank branch, and it doesn't make these loans on homes held in a trust in Hawaii, Louisiana, New York, Oklahoma and Rhode Island.

Online lenders reach further but still have gaps. Spring EQ doesn't take applications for homes in New York. Rocket Mortgage's minimum loan is $45,000 in most states, $10,000 in Michigan and $61,000 in Iowa.

A credit union lends to its members

The NCUA's consumer site describes a credit union as a member-owned, not-for-profit institution whose members "share a common bond, also known as the credit union's 'field of membership.'" That bond can come from an employer, family, where you live or work, or a group you belong to. The same site says credit unions offer lower loan rates on average, which describes the whole industry and says nothing about the quote you'll get from one of them.

At FourLeaf Federal Credit Union, based in Bethpage, New York, you become a member by opening a share savings account with at least $5 before the loan closes. Its home loans aren't available in Texas.

"No closing costs" can mean three different things

Regions says flatly that the "Bank pays all closing costs." U.S. Bank also says its home equity loans have no closing costs, but a footnote adds that "some fees may still apply." FourLeaf, on its HELOC, pays the closing costs up front and takes them back if you close the line within 36 months, and it puts those costs at $500 to $15,000 in most cases.

The online lenders describe their fees in other terms. Rocket advertises "no origination fee." Spring EQ says "There is a lender fee but no annual fee," and doesn't give the amount. The fees guide covers what each of these charges can include.

The form that puts quotes side by side

A closed-end home equity loan comes with a Loan Estimate, which the lender has three business days from your application to send, and the CFPB notes that "All lenders are required to use the same standard Loan Estimate form." The estimated rate, the monthly payment and total closing costs sit in the same place on every lender's version, so a bank quote and an online quote can be laid next to each other line by line. The loan rates guide goes through which lines to read.

HELOCs and reverse mortgages don't get this form. Borrowers shopping for those receive Truth-in-Lending disclosures instead, which don't share a layout, so the fee lines have to be pulled out and matched by hand.

Sources

Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.