Bank’s Unique Mortgage Rate Offer: We’ll Split the Difference

A regional bank is taking a novel approach to countering a surge in homebuyer costs that’s paralyzed the U.S. real estate market: Since prevailing mortgage rates are almost triple what they were less than three years ago, the bank will split the difference.  

In other words, mortgage applicants at Trustco Bank won’t get to keep the stellar 30-year mortgage rate they got during the pandemic — a rate of 3% or less in many cases — but they won’t have to pay today’s going rate of 7.5% either. Instead, the Glenville, New York-based lender will meet them in the middle, halfway between the two.

The spike in borrowing costs is making it even harder for Americans to afford real estate that surged in value during the pandemic buying boom. But beyond that, it’s deterring current owners from selling, keeping too many homes off the market and propelling the prices of the relatively few available properties ever higher.

“There are a lot of people on the sidelines who don’t want to put their house on the market because of the low rate they have on their mortgage,” J.R. George, a senior vice president for Trustco, told The Messenger Tuesday. “We thought, if there’s a way we can entice people to move, by giving them a better interest rate, that’s something we can do.”

Trustco’s new offer is of particular significance given the mortgage rate extremes of the last three and a half years. When COVID-19 lockdowns rocked the economy, rates fell to record lows under 3%, encouraging what seemed like everyone to either buy a house or refinance their existing loan. 

But as the economy reopened, price inflation set in, pushing mortgage rates higher and making it less and less affordable to buy a home. Last week the average for a 30-year fixed mortgage reached 7.57%, the highest since December 2000, according to mortgage giant Freddie Mac. 

Because of this, almost two-thirds of U.S. mortgage holders have rates of 4% or less, including 23% with rates under 3% and 38% with rates between 3% and 4%, according to Freddie Mac. Another 20% have rates between 4% and 5%. 

Hence the potential appeal of the “Split-the-Difference” offer, which is only available to people who got their current mortgage from Trustco. 

If a customer has a 30-year rate of 3.5% with Trustco right now and would otherwise be able to buy a house at 7.5% today, they would end up with a 5.5% rate because that’s the halfway point between those two. 

That’s a good deal from the customer’s point of view as well as Trustco’s, George said. The bank not only helps breathe life into the gridlocked real estate market, but collects more interest on the higher rate. 

“We’re trading a lower rate mortgage for one that’s paying a higher interest rate,” George said, noting there are about 25,000 mortgages that can be traded in. “Our credit underwriting standards have not changed — they’re already our customers.” 

The new mortgage would replace their old one, and otherwise, the fees and terms are no different than they would normally be, he said.

Trustco is unusual because it’s what’s known as a portfolio lender. It doesn’t sell its mortgages so they can be packaged into securities and sold to bond investors, as happens to about two-thirds of U.S. mortgages. Instead it keeps the loans, collecting the interest income. 

Trustco operates 143 branches in New York, New Jersey, Vermont, Massachusetts, and Florida.