The Globe and Mail ran this piece today about online mortgage discounters. You’ll see similar stories in the coming months as the media picks up on this trend.
Just as notable, however, was the article’s comment from Mitchel Chilcott, CEO of North Peace Savings and Credit Union (NPSCU).
Chilcott was talking about member dividends, a form of profit sharing that’s long been a hallmark of credit unions. He noted that NPSCU chose to reduce its patronage dividends so it could lower its mortgage rates.
“For most homeowners, having a $90 or $100 lower mortgage payment a month was a lot more meaningful and impactful than maybe getting money back 14 months later,” he told the Globe‘s Tamsin McMahon.
Such dividend payments are becoming more anachronistic each month that goes by. In an age where consumers are increasingly mortgage rate-savvy, and where comparing rates is done in mere mouse clicks, member dividends pose an unclear benefit. They’re hard to quantify, hard to compare online and hard to rely on as a borrower.
In this author’s view, they’re becoming a disadvantage to credit unions who use them. There’s only so much of the revenue pie you can share as a CU lender. Either you advertise the most competitive rate you can, or you charge a higher rate and rebate some of the interest. And for the reasons above, consumers may increasingly be attracted to the simpler bird in the hand, a lower rate.
That’s exactly what DUCA Financial concluded last year. The credit union did away with dividends on broker-originated mortgages, in favour of 5-year fixed rates that are near the lowest in the nation.
Looking into the future, highly efficient credit unions that reinvest in their members (via lower rates), don’t pay dividends and don’t pay traditional originator commissions may have the biggest edge amongst their peers.