A relatively, little-known Michigan credit union has a deal on mortgage rates that screams “notice me now” at a time when there’s not much nice to say about interest rates.
Michigan Legacy Credit Union — which has branches in Wyandotte, Warren, Pontiac, Highland Township and Flat Rock — is offering a 4.99% interest rate for new 30-year, fixed mortgages.
More typically, lenders are promoting rates in the mid-5% to low-6% range in early September.
The 30-year fixed rate mortgage averaged 6.5% as of Sept. 4, according to data from Freddie Mac’s latest primary mortgage market survey. A year ago, the average was 6.35%.
Why was a mortgage sale launched?
Carma Peters, president and CEO of Michigan Legacy Credit Union, told the Detroit Free Press that loan demand and lending activity at the credit union slowed down as economic uncertainty built in recent months. As a result, the credit union now has a lot of cash on hand and began researching various options for investing that cash.
Instead of opting for traditional certificates of deposit and bonds, though, the credit union decided to try to offer its members more relief when it comes to mortgage rates.
Peters calls the low rate mortgage a “member giveback” that was approved by the credit union’s board of directors for up to $25 million in mortgage loans.
“It makes sense for us. It makes sense for the consumer and it’s a win-win for everybody,” she told the Detroit Free Press.
The credit union sees this 4.99% rate as a way to make more money on its cash, while offering credit union members an opportunity to find a lower-cost loan. The credit union is designated as a “low-income credit union” where more than half of its members fall under set income guidelines.
The credit union also hopes to build its membership.
She said the credit union worked with its financial consultants to find a mortgage rate that would work for both the credit union and its customers. The credit union could have offered a rate of 6.25%, she said, that would have been appealing now.
But if mortgages rates fell in the future, she said, the risk was that credit union members might want to refinance that 6.25% mortgage rate and they might turn to other lenders.
“If rates do drop as projected, we’re not going to lose those loans,” Peters said.
“We wanted to find what was that sweet spot for us,” she said.
While the credit union with more than $218 million in assets ranks as No. 75 in size in the state, its field of membership allows anyone who lives, works, owns a business, worships, or attends school in Michigan to join.
Make no mistake, there are some caveats as with any deal.
Some footnotes: The 4.99% interest rate is subject to credit approval and is designed for new, fixed 30-year home mortgages and not adjustable-rate mortgages or home equity loans. The mortgage also has 1 point — or a fee of 1% upfront of the total amount of the loan.
Peters said the 4.99% loan can also be used for refinancing a mortgage if that mortgage is not already at Michigan Legacy Credit Union.
Peters said the credit union does not have a specific credit score requirement, as the lender will look at the borrower’s entire picture. For example, she said a larger down payment could compensate for some credit issues to qualify for the 4.99% rate.
The credit union will hold all these mortgage loans and not sell them to Fannie Mae or Freddie Mac.
Michigan Legacy also noted that the Wyandotte-based credit union reserves the right to terminate the offer at any time, while still honoring the interest rate for those who have closed loans at 4.99%.
The credit union offers this example: A borrower could save roughly $211 a month — or $2,532 a year — on mortgage payments for a $300,000 house with a 30-year mortgage rate of 4.99%, compared with payments on a mortgage at 6.375%.
The payment for principal and interest only on the mortgage — not including property taxes and homeowner’s insurance — would be $1,287 a month with a mortgage at 4.99% in this example. This example assumes a 20% down payment to get to those numbers.
The credit union is not necessarily requiring a 20% down payment, Peters said, but could take other factors into account when determining the mortgage rate.
Private Mortgage Insurance, known as PMI, is typically required when a buyer puts down less than 20% of the purchase price. The insurance is needed to protect the lender if a homeowner defaults on a conventional loan.
What’s one risk that the credit union is taking? Mortgage rates overall could shoot up from here, not down as expected, Peters said, and the credit union would have lower-rate mortgages on its books.
One would think, at some point, we could use a big sale on interest rates, including mortgage rates. And we are seeing some periodic deals.
In early September, Chase Home Lending introduced a nationwide rate sale involving refinancing that runs through Sept. 21. The discounted refinancing rate will vary by mortgage product and location. It can be used with other discounts the lender offers, such as relationship pricing that offers up to 1% off your rate.
The discount program can apply to homeowners who want to refinance to reduce their rate, lower their monthly payment, or tap into their home equity through a cash-out refinance.
According to Chase, refinance applications have jumped in recent weeks, and adjustable-rate mortgage demand surged to a three-year high in August, the highest level since 2022.
What’s next for mortgages, though, is debatable.
The Federal Reserve will likely cut short-term interest rates at its next meeting Sept. 16 and Sept. 17. But it’s not a slam dunk that mortgage rates will fall back from here.
Mortgage rates tend to track activity in the 10-year U.S. Treasury market, not the short-term federal funds rate as set by the Fed.
“It’s very complicated right now,” said Ted Rossman, senior industry analyst for Bankrate.com.
Right now, Rossman said, there’s a good chance the average 30-year fixed mortgage rate will fall below 6% by early next year — the first time we’ve seen that level since summer 2022. But there remains much uncertainty.
Yet, long-term rates could move higher, not lower, if investors believe that high tariffs or other factors will ultimately reignite inflation.
On the surface, Rossman notes, several pieces of the puzzle might seem to offer hope that lower mortgage rates could be in the picture. The job market appears to be weakening and inflation appears to have cooled down, both giving the Fed more room to cut rates.
As of Sept. 8, Rossman said his bet was that the Fed would cut the short-term federal funds rate by a quarter point. It would be the first rate cut in 2025. A quarter-point cut would put the target range for the federal funds rate at 4% to 4.25%.
A quarter-point cut at the September Fed meeting is a lock, according to a statement from Jeff DerGurahian, chief investment officer and head economist at loanDepot. He also believes the odds for a half-point cut in September are increasing.
Overall, he noted, the market is anticipating a total of 75-basis-point cuts over the next three remaining meetings in 2025.
An easing in the Fed’s monetary policy, he noted, will contribute to create a favorable setting for mortgage rates to continue trending downward.
In 2024, the Federal Reserve cut short-term interest rates three times — a half-point cut last September, a quarter point cut in November, and a quarter-point cut in December. Short-term rates dropped by a full percentage point in a few short months last year.
Keith Gumbinger, a vice president at HSH.com, a mortgage information website, said the 4.99% promotion by the Michigan credit union looks like a “very aggressive” offer, given that it is significantly lower than average rates.
Yet, he noted, the offer has limits — such as a set pool of money with $25 million available for the program and a 1-point upfront fee. The promotional offer can be viewed as a way to build membership and build the credit union’s loan portfolio.
Even so, Gumbinger said: “Such offers may be limited or have contingencies attached, but can provide tremendous value for those who qualify.”
Of course, those looking to refinance or buy a home need to do what they can to qualify for the lowest rates possible.
In general, potential home buyers should work hard to boost their credit score by paying down their bills — and paying on time. Also check your credit report to spot any mistakes that could drive down your credit score. See www.annualcreditreport.com.
Making a larger down payment, in general, can improve one’s chances for being approved for lower mortgage rates.
Those sitting on the sidelines waiting to buy a home, Gumbinger said, need to understand that ongoing concerns about high inflation could make it difficult for long-term rates to fall much from these levels, outside of a real economic downturn.
Another concern: The Fed could lose its independence, as President Donald Trump would like, and throw caution to the wind by dramatically slashing short-term rates, which some experts say would ironically drive up long-term rates.
Most recently, long-term interest rates have come down, with the 10-year Treasury yield near 4%, but there’s a risk they could go up, too, said Mark Zandi, chief economist for Moody’s Analytics.
“Long-term rates could rise even if the Fed cuts rates, if investors believe the Fed is losing its independence and will keep short-term rates too low for too long, causing inflation to accelerate,” said Zandi, who expects the Fed to cut rates a quarter-point in September.
The Fed is recognizing that “job growth has come to a standstill, and recession risks are high,” Zandi said.
“The Fed desperately wants to avoid a recession, as it could be existential for its independence from the executive branch,” Zandi said.
One billionaire even sounded the alarm bell.
Trump’s “statements and actions that undermine the independence of the Fed risk stoking both higher inflation and higher long-term rates,” according to an opinion piece in the Wall Street Journal penned by Kenneth Griffin and Anil Kashyap.
Griffin is a Republican hedge fund billionaire. Kashyap is professor at the Chicago Booth Business School and a consultant to the research department at the Federal Reserve Bank of Chicago.
“The president’s strategy of publicly criticizing the Fed, suggesting the dismissal of governors, and pressuring the central bank to adopt a more permissive stance toward inflation carries steep costs. These actions raise inflation expectations, increase market risk premiums, and weaken investor confidence in U.S. institutions,” according to the WSJ opinion piece.
The piece, published online Sept. 7, warned that “tens of millions of retired Americans will see their savings diminished” in a worst-case scenario if the Fed “visibly bows to political pressure and permits inflation to rise unchecked.”
In addition, the authors wrote, “The government will pay more to finance deficits, young families will struggle to afford homes and companies will invest less.”
The jobs picture — while giving the Fed more room to cut rates — remains troubling.
“Back in the spring, everyone was freaking out about tariffs. Now it’s more about: ‘Will there be a recession? Will I lose my job?'” Rossman said.
Layoffs don’t appear to be skyrocketing out of control. But hiring has slowed dramatically. Some employers are increasingly cautious, Rossman said, as tariffs have increased uncertainty and cut into profit margins.
The job market has more of a “no hire, no fire” sort of feel now, he said.
The health of the housing market needs a relatively stable job market and overall economy.
“If rates fall below 6% because inflation is coming down and the economy no longer needs as much restriction, that will be a much better environment to buy a house than if rates fall below 6% because the job market is struggling,” Rossman said.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
This article originally appeared on Detroit Free Press: What’s next for mortgage rates if Fed cuts rates in September?