If you recall, Chase acquired struggling First Republic Bank in May 2023.
Before First Republic’s collapse, it was the leading jumbo home loan lender in the United States.
They catered to wealthy homeowners and businessmen. Ironically, it was their extremely low-interest mortgages that ultimately led to their decline.
Today, Chase is the nation’s largest jumbo lender, with production of more than $8 billion in the first half of 2024, according to Inside Mortgage Finance.
As with First Republic, these companies also attract high-net-worth individuals with special discounts on mortgage rates.
Up to 1% discount on mortgage rates if you bring money to the bank
In 2023, Chase was the third-largest mortgage originator in the country, per Hamda data. It is the largest depository for home loans.
They are only beaten by two non-banks, United Wholesale Mortgage and Rocket Mortgage.
Their acquisition of troubled First Republic made them bigger, and put a stronger focus on the bank’s massive lending.
In essence, they’re following some of the same principles, though possibly adding guardrails to avoid the same fate.
One such practice is to offer discounts on mortgage rates to its wealthier clients, i.e. those who want to keep a lot of money in the bank.
The New York City-based bank’s so-called “relationship pricing program” offers mortgage rate discounts of between 0.125% and 1% based on new and existing balances at the bank.
These apply whether you’re buying a home or refinancing an existing mortgage.
As shown in the chart, those who can raise $37,500 in new money or investments can get a 0.125% discount.
Although this isn’t a big deal, clients who are able to bring in $300,000 in new money or investments can get a full 1.00% discount on their interest rate.
For example, if the mortgage rate being offered is 6.5%, they may give you a rate of 5.5%. This may be difficult for external lenders to overcome.
Regarding the large loan amount, we are talking about some significant savings.
Using a loan amount of $1,500,000, the difference would be about $965 per month. Or $11,580 per year.
They also offer a rate discount of up to 0.25% for existing balances in the bank (0.125% for $500K-$999K, and 0.25% for $1M+).
How does relationship pricing software work?
To receive the interest rate discount, new funds must be deposited into a customer’s Chase account at least 10 calendar days before the scheduled mortgage closing date.
Note that some accounts are not eligible, including business, deferred compensation, student, custodial, 529b college savings, donor-advised funds, defined retirement accounts, and unvested RSUs.
So make sure the new money will actually count toward the deduction.
Customers will be subscribed at the actual note price before discount, per Within real estate finance.
In other words, it doesn’t seem like you can qualify for a lower rate, assuming you need to.
Note that funds settled in a customer’s deposit and/or investment accounts 14 or more calendar days before completion of a mortgage application are not eligible for the new funds deduction.
It is also possible to receive a discount on the post-closing interest rate if funds are received and settled within 30 days of loan closing.
But it may be less than the discounts available before closing, and the customer must sign a price change amendment.
These customers will also not receive a refund for any interest that was already paid before the rate change took effect.
While new and existing balance discounts can be combined, the total price discount cannot exceed 1%.
Finally, for adjustable rate mortgages, the rate discount will only apply during the initial rate period.
For example, the first five years on a 5/6 ARM, or the first seven years on a 7/6 ARM.
Good deal or not?
As with any of these types of deals, you need to compare what you can get elsewhere.
I always look at the overall cost of the mortgage. This includes closing costs and the interest rate received.
A discount means nothing if a bank or other lender can offer a lower mortgage rate with lower closing costs.
For example, a 1% discount on a 7% rate is 6%. If another lender can give me 5.875%, who cares if it’s a 1% discount?
How much do I have to pay to get this interest rate? Points, origination fees, etc.?
So take the time to compare offers, and also think about how much your money is expected to earn while parked in your Chase account.
There is an opportunity cost to consider here as well, which can cloud the comparison when expected returns are not guaranteed.
But if Chase is outperforming the competition, it may not make sense to use these companies versus another mortgage company.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My work experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) homebuyers better navigate the home loan process. Follow me on Twitter for hot takes.
Source link
