Credit union or bank? It's your call

DEAR BRUCE: I'm considering using a credit union instead of a traditional bank. What is your opinion? — Mark, via email

DEAR MARK: Most credit unions today offer the same benefits that traditional banks offer. They may call a checking account by a different name, but it's still a checking account for all intents and purposes. For the credit union, you will have to become a member, and there may be some expense involved.

On balance, if they are a local organization and you are comfortable with them, I have no problem.

Oftentimes, there might be banking services that a traditional bank will offer that the credit union does not and sometimes the reverse of that is true. It's a matter of personal choice, but certainly there is a lot to recommend, credit unions as well as a more traditional account. It might be that a credit union doesn't issue credit cards but your bank does. You see where I am going with that. You have to compare each service that you use.

DEAR BRUCE: We have a 5/1 ARM loan at 5.75 percent for 30 years on our rental home, which will be up for an interest change in May 2012. The house value has dropped tremendously due to several foreclosures in the neighborhood. Today the house value is $225,000 and the loan is for $270,000. The mortgage is about $2,025 and the renter pays $1,800 a month on this property. We are comfortable paying the difference of $225 to cover the mortgage. With the inevitable interest raise, we, as landlords, will not be able to make up the difference. We don't want to go for a short sale/foreclose if possible, as it will affect our credit score, which is 820. For rental properties the bank needs the house to have at least 25 percent equity in the house. We don't have any cash to get the house refinanced. What would you advise us to do? — M.S. via email

DEAR M.S.: You are in very good company having lost a great deal of money, in paper value, of a home. You are currently paying 5.75 percent, which is going to come up for an interest change. You might discuss that with your lender. Explain that you are subsidizing and you would like to continue to do so, but if the interest rate is increased, it will be impossible for you to cover. With real estate situations as they are and the 5.75 percent interest you are paying, the lender will very likely will not want to lose you as a customer. The chance of the lender getting as much interest from someone else is remote. Beware that oftentimes you will have to fight your way through an army of people that say, this is our policy and that's the way it is. They will ordinarily pay a lot more attention to an attorney's letterhead than they will to your own. For pity sake, don't tell them how you are concerned about your credit score. That will only be used as a weapon against you.

On balance, if I were the lender, I would tell them that I am going to give you another five-year commitment at 5.75 percent. That is a good return for them, especially in today's world and very particularly because their loan is secured for the property that is dropped below the amount of the loan. That is not a good place for the lender to be since you are willing to continue to pay a good interest rate on a loan that is poorly secured. I think the lender should be very happy to extend the mortgage at the same rate. I would get on this now. Do not wait until next year.

Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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