In an effort to attract younger customers and a bigger share of the local mortgage industry, Loyola Federal has introduced RTC the "Homebuyer's CD," a 30-month certificate of deposit that allows deposits of $25 or more and offers a free home appraisal to customers who take out their mortgages through the Baltimore thrift.
Essentially an enforced savings plan for new homebuyers, the program is designed to encourage customers to start saving now for their first home by allowing deposits to be added to the value of the CD at any time, said William Wycoff, executive vice president of community banking and marketing at Loyola Federal Savings and Loan.
Although Loyola's primary target is new homebuyers, the CD can also be used by customers saving to buy their next home or a vacation home.
"What we don't want to happen is people taking their money and parking it in the account and then forgetting about it," Mr. Wycoff said. "That doesn't help the homebuyer and it doesn't help us. We want to see a systematic savings plan that helps them build up their base."
Loyola officials estimate that the average first-time homebuyer needs $10,000 for a down payment and closing costs and believe their CD is a practical way for younger customers to realize that goal. Customer service representatives at Loyola will also assist CD buyers in determining a realistic monthly savings plan.
Penalty-free withdrawals are allowed from the Homebuyer's CD if the money is used to purchase a home, even if the mortgage is through another lending agent. However, if the money is withdrawn for another purpose within the first 15 months of the term, customers are penalized the equivalent of 180 days' interest. In the final 15 months, the penalty would become equal to 90 days' interest.
For a $5,000 CD at the current interest rate of 7.70%, the first 15-month penalty would amount to $190, and the second 15-month penalty, $95.
To qualify for the free home appraisal, which Loyola values at $300, the Loyola account-holder must make deposits of $25 or more in 26 months of the CD's 30-month term or maintain a balance of $10,000 or more, Mr. Wycoff said.
If a customer fulfills the 26-month commitment and then decides to renew the CD for another 30 months, they are not obligated to make the same 26-month deposit commitment on the second term, Mr. Wycoff added.
"As long as you meet the initial criteria, the free home appraisal will stay," he said.
A drawback to the free appraisal is that it prevents the customer from "shopping mortgage quotes" at other lending institutions, since the appraisal only applies to mortgages offered through Loyola.
"You have to weigh the benefits," Mr. Wycoff said. "We're hoping that with the other things we're offering with this program, it will provide an incentive for people to get their mortgage with us."
The minimum deposit required to open an account is $500. Every three months thereafter, Loyola Federal will mail customers home-buying fact sheets and booklets that include information on credit ratings and mortgage terms.
Mr. Wycoff said the Homebuyer's CD is an excellent way for parents to help their children get started on saving to buy a new home. In fact, research conducted by Loyola Federal, whose customers "are older by nature," Mr. Wycoff said, found that many of them were concerned about how their children would find the money to make a down payment.