How to tell if your bank’s mortgage-rate discount promotion is a good deal

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To gain customers, banks once gave toasters as gifts. Now it’s all about relationships, with some institutions marketing mortgages with discounted closing costs or reduced interest rates to customers who also have deposits, brokerage accounts or just a credit card with the bank.

Citibank, the giant institution with nearly $1.5 trillion in assets, recently promoted a “relationship pricing” menu of incentives aimed at encouraging its customers to open home loans through Citi Mortgage:

  • A Citi customer with up to $50,000 at the bank qualifies for an incentive of $250 off closing costs.
  • A client with $1 million to $2 million at Citi can knock half a point off their mortgage rate.
  • At the high end of the scale, a well-heeled depositor with $2 million at Citi qualifies for a rate discount of 5/8ths of a point. On a $500,000 loan with a 30-year term, that amounts to a savings of $172 a month.

Before the coronavirus pandemic sent the U.S. economy into a tailspin, banks leaned more heavily on such promotions, says banking analyst Ken Thomas, president of Community Development Fund Advisors. Chase, for instance, offered deals such as Ultimate Rewards points to Chase Sapphire credit card customers who took mortgages with the bank.

Banks embrace cross-selling — even smaller ones

While the splashiest mortgage deals tend to come from mega-banks, smaller banks and credit unions also are getting in on the action. By selling multiple financial products to the same customer, banks aim to build customer loyalty. “This is all part of the ongoing banking trend of ‘relationship banking,’ also known as ‘cross-selling,’” Thomas says.

Cross-selling doesn’t have the best reputation, Thomas says. Wells Fargo tainted the practice with aggressive attempts to load customers with unnecessary accounts, and banks that participated in the Paycheck Protection Program were criticized for prioritizing customers with multiple accounts.

Meanwhile, bankers have been rattled enough by the record jump in unemployment that they’re focusing the most lucrative mortgage incentives on the wealthiest borrowers — as illustrated by the generous rate breaks going to Citi customers with seven-figure balances.

Especially in times of economic uncertainty, banks target affluent borrowers, says Rocke Andrews, owner of Lending Arizona and president of the National Association of Mortgage Brokers. “They’re less likely to, A, go into forbearance and, B, miss a payment,” he says.

How to tell if a promotion is a good deal

There’s no reason not to accept your bank’s mortgage offer, but you should shop around first, says Greg McBride, CFA, Bankrate chief financial analyst. “There isn’t a one-size-fits-all answer, but the best way to find out is to undertake the same comparison-shopping process you otherwise would, and the cream will rise to the top,” McBride says.

After all, a quarter-point discount off a rate that is half a point higher than you can find elsewhere doesn’t do you much good. “But getting a quarter-point discount or a break on closing costs with an otherwise competitive rate definitely tips the scales in that direction,” McBride says.

In some cases, shopping around can lead your bank to offer you a better deal. Andrews says he recently worked with a borrower who had asked his credit union for a lower rate on a mortgage. The credit union didn’t respond until it realized the borrower had enlisted Andrews to shop for a new loan.

If you receive a mortgage offer from your bank or credit card company, keep in mind that the institution is hoping you respond directly to its promotion. If you don’t use a third-party mortgage broker, your bank avoids paying a commission, so its costs to originate the loan will be lower by hundreds or thousands of dollars. In that context, a few hundred dollars in incentives or even a lower interest rate make business sense.

Also remember that the more money you have, the more likely your bank is to make a sweet offer.

“If you’ve got a million dollars, yes, you’re going to get a good deal,” Andrews says. “If you’re the customer who’s being offered $200 off your closing costs, you can probably get a better deal yourself or by going to a mortgage broker.”

Featured image by Andrew Caballero-Reynolds of Getty Images.

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