For a homebuyer, refinancing sounds like a tomorrow problem. But surveys have shown that up to 80%+ of homeowners plan to refi at some point during their mortgage. So whether you’re already a homeowner or looking to buy, it makes sense to know what’s in store.
In short, refinancing is a pain. Credit checks, 30-day closing process, signatures. Closing costs all over again. New appraisal, new title insurance, origination fees, etc.
Is all this necessary? Unfortunately, yes. Because if you’re like most people, within weeks of your original closing, your loan was likely bundled into a “mortgage-backed security” (MBS) and sold to investors on Wall Street, guaranteed by Fannie Mae or Freddie Mac.
Your loan doesn’t belong to your lender anymore. It’s packaged up under strict terms such that changing anything (your rate, your term, your co-borrowers) requires a new loan.
What If There Was a Better Way?
Imagine this: mortgage rates drop. You call your lender. You say, “Hey, I’d like the lower rate.” They send you a DocuSign. You pay a simple fee. Next month you pay the lower rate.
No appraisal. No credit check. No 30-day process. No $5,000+ in closing costs.
Sound too good to be true? It’s not. A growing number of lenders offer exactly this. You’ve just never heard about this magical route because almost everyone who offers it is a nonprofit credit union.
The Magic Is Real
The process goes by many names, but here’s a general one:
Here are real examples of credit unions offering rate drops without refinancing:
- Transportation FCU calls it ”HarmonyLoan.” After the first 6 months of your mortgage, you can reset your rate every 120 days with no closing costs. Here’s a real example of a borrower dropping from 6.875% to 5.375% with FedChoice CU.
- Spectrum Credit Union offers “Rate Refresh” loan modification for a flat fee of $995.
- DuPont Community CU has “RateDrop Mortgage.” You can lower your rate every 12 months for a fee of 0.5% of principal.
- Launch Credit Union offers a “Rate Reset Program.” Every 6 months, up to 6 times over the life of the loan, for just $300.
- Star One Credit Union calls it “Mortgage Rate Modification.” 0.5% of your outstanding balance, with a minimum of $750 and maximum of $2,000.
What do all these lenders have in common?
Well, they’re all credit unions, but more importantly they’re almost certainly portfolio lenders.
What Is Portfolio Lending?
A ”portfolio loan” is a mortgage that the lender keeps. Unlike most mortgages, it doesn’t get bundled into a bond, and it doesn’t get sold to Fannie Mae. They just hold it on their own balance sheet and collect your interest payments.
Because the originating lender owns the loan, its terms stay flexible.
This unlocks features that big banks (who operate almost exclusively on the “originate-to-sell” model) simply cannot offer.
Why Would a Lender Do This?
This is how most lending worked pre-financialization. Properly underwritten mortgages are a relatively safe debt instrument for lenders. The model worked before and it still works now.
From the lender perspective, if rates drop significantly, you’re going to refinance anyway. If you refinance with another lender, they lose your loan entirely, shrinking their portfolio.
By letting you drop your rate for a small fee, they keep you as a customer for the full term of the mortgage. It’s win-win.
Finding a Portfolio Lender
This is the hard part. Lenders don’t usually advertise “WE ARE A PORTFOLIO LENDER” on their homepage.
You have to look for the clues:
- Look for terms like “Rate Modification,” “Rate Reset,” or “Rate Refresh” in their mortgage pages.
- Ask the loan officer directly: “Do you hold your loans to term in portfolio, or resell them to Fannie Mae?”
- Check our Dashboard: We are working on adding a “Supports Rate Modification” filter to highlight these lenders.
At the time of writing, Transportation FCU has the best rate for 30-year mortgages (5.54% APR) and offers rate modification via HarmonyLoan in case it goes any lower.
The Credit Union Difference
If you’ve been following along with our credit union series, you might notice a pattern. Innovative products that don’t fit the mortgage mold we usually see. It comes down to how credit unions operate as nonprofit businesses.
Credit unions take in deposits from members: savings accounts, checking accounts, CDs. That money has to go somewhere. They need to invest it to generate returns and pay dividends back to members.
Mortgages are the perfect asset for this. They’re stable, long-term, and generate steady interest income for decades. By holding mortgages in portfolio, credit unions invest member deposits directly into member homes, keeping the interest within the membership. It’s a natural fit.
That said, not all credit unions are portfolio lenders. Many CUs also sell their mortgages into the secondary market as MBS. The decision to hold versus sell is largely driven by scale and the individual CU’s management strategy. But the numbers suggest they’re far more likely to hold than banks.
Big banks these days rarely want to hold your loan. They make their money on origination fees and selling loans. The faster they can flip your mortgage to Fannie Mae and move on to the next one, the better.
The Magic Might Not Last Forever
Mortgages are long-term loans, and credit union policies can change: In a recent interview, the President of the American Credit Union Mortgage Association noted that many CUs are now “stuck” with low-rate loans from 2020-2021 and facing liquidity pressures that may push them toward selling more mortgages to Fannie/Freddie rather than holding them in portfolio.
If you’re talking to a credit union about home lending, it’s still worth asking: Do you offer rate refreshes or rate drops? What’s your strategy for holding mortgages to term?
The Bottom Line
If you’re shopping for a home in a high-rate environment, a portfolio lender with a modification feature is an option you’ll definitely want to look for.
Rates drop? You drop with them. No refinancing required.
Portfolio lending is just one example of the flexibility that comes from this structure. The 15/15 ARM is another—a mortgage product that offers lower rates with almost the same stability as a 30-year fixed, but big banks won’t touch it.
And as we showed in The Lazy Tax, even when you’re just comparing plain vanilla 30-year fixed rates, big banks charge 30-50 basis points more than credit unions on average.
Check out our Credit Union Mortgage Dashboard to start your search.
