Ask Money

Community bank

Chris Farrell Apr 2, 2009

Question: I am trying to decide which lender to use to refinance my home mortgage. The small, neighborhood bank is offering the lowest rate with mortgages backed by Fannie Mae/Freddie Mac. Their closing costs are slightly less than the big name mortgage lenders in my home city. Is there anything else I should consider in this decision regarding which lender to choose? I like the personal service and convenience of the neighborhood lender, but are there any risks that I’m overlooking with using a smaller lender? How is the smaller lender able to offer lower rates? Thanks. Elsa, St. Louis Park, MN

Answer: There is no reason why you shouldn’t go with your community lender so long as you’ve shopped around (which you have) and it’s a bank insured by the FDIC. The risks are the same. There could be a number of reasons why they’re offering lower closing costs, from a business strategy to compete against the big banks to having a healthier balance sheet. When the numbers line up, it’s good to support neighborhood institutions.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.