Pentagon Federal Credit Union (PenFed) has an exceptional record for customer service, competitive rates and a wide breadth of mortgage products, which make it an ideal option for qualifying applicants. However, because PenFed is a credit union, you will need to become a member to apply for a mortgage.
PenFed: Wide Selection and Exemplary Customer Service
PenFed is an attractive option for borrowers who seek competitive rates and a greater variety of loan options than what's typically offered by banks. PenFed is a credit union, which means that its terms are only available to members. However, depending on your job or location, it may be easier to join than you think.
How Do PenFed Mortgages Compare?
PenFed's mortgage interest rates are lower than those charged by the major banks, partly because its tax-exempt status as a credit union allows it to pass those savings on to members. However, PenFed's origination fee and closing cost estimates are higher than those of its competitors. Below, we reviewed online estimates for a 30-year mortgage for $160,000 from PenFed and three major banks to determine the differences in rates and closing costs.
30-Year Fixed-Rate Mortgage Estimates
|PenFed||Bank of America||Chase||Wells Fargo|
- Assumes zero points and $1,000 city/transfer taxes for a $200,000 home in Pennsylvania. Excludes prepaid interest, mortgage insurance and property taxes. Also excludes optional owner's title insurance.
- Wells Fargo did not itemize its closing costs in our quote.
- Miscellaneous fees include endorsements, credit report fees and other items that were either similar across lenders or considered not relevant for the purposes of comparison.
Based on our research, we found that PenFed's closing costs are significantly higher than what we've seen offered by its competitors. The itemized quotes we received showed that this was largely due to PenFed's origination fees, which were at least 26% higher than the fees charged by either Bank of America or Chase. Additionally, its quoted title insurance and settlement fees were higher than its competitors by a margin of 11% or more.
To offset costs, PenFed also offers a Real Estate Rewards program. Under this program, applicants can receive a credit of up to $10,000 off their loan amount for qualifying adjustable rate mortgages (ARMs). Additionally, borrowers applying for a qualifying 30 or 15-year fixed-rate mortgage may avoid origination fees. Finally, veterans seeking a 30-year fixed-rate loan sponsored by the Department of Veterans Affairs (VA) can receive 1% of their total loan amount as a promotional credit.
For qualifying loans, the savings obtained under PenFed's rewards program can translate into thousands of dollars. However, participation in the rewards program requires that you work with a PenFed-affiliated real estate agent and title insurance company, which may prove difficult for some applicants. Borrowers in Texas, New York and other areas without PenFed title affiliates are exempted from this rule.
Customer Service and Mortgage Servicing
PenFed scored very well in customer satisfaction relative to its competitors. PenFed received less than a quarter of the ratio of complaints received by any of the major banks we surveyed. This indicates that borrowers who obtained mortgages through PenFed were more likely to be satisfied customers.
Mortgage-Related Complaints at Major Banks, 2013–2017
|PenFed||Chase||Wells Fargo||Bank of America|
|Ratio of Complaints||0.23%||1.56%||1.17%||2.40%|
|2017 JD Power Rating||n/a||764||745||767|
Of the mortgages originated by PenFed, the Consumer Financial Protection Bureau (CFPB) reported only 175 complaints, all of which were subsequently addressed and closed by the lender. Its ratio of complaints to mortgage originations was among the lowest achieved by any brick-and-mortar lender that we've reviewed.
PenFed originated significantly fewer mortgages than any of the major banks, largely due to its status as a credit union, which limits applications to qualifying members. Additionally, credit unions are not-for-profit entities, which usually pass on their earnings to customers in the form of savings and loans. As a result, PenFed's loan officers may be less susceptible to the profit-driven pressures that have negatively influenced its competitors in the past.
Mortgage Loan Products at PenFed
PenFed offers a wide array of mortgage, home equity and investment-property products. These include 30-, 20-, 15- and 10-year fixed-rate mortgages that come in conventional, jumbo, and VA-sponsored varieties.
- 30-, 20-, 15- and 10-year fixed-rate mortgages.
- 15/15, 10/1, 7/1, 5/5, 5/1 and 3/1 adjustable-rate mortgages
- Home equity loans with 60-, 120-, 180- and 240-month terms
- 5/5, interest-only, and vanilla home equity lines of credit (HELOC)
- Home equity loans, balloon mortgages and HELOCs for investment properties
|Mortgage Product *||Interest Rate||APR|
|30-year fixed rate||4.25%||4.37%|
|30-year VA fixed rate||4.25%||4.54%|
|15-year fixed rate||3.75%||3.93%|
|15-year VA fixed rate||3.88%||4.38%|
- List is not comprehensive. Prospective borrowers should visit PenFed's website for full details *
PenFed offers one of the widest selections of products of the mortgage lenders we've reviewed. PenFed allows borrowers to structure ARMs using 10/1, 3/1, 5/5 and 15/15 terms, which are adjustable-rate structures that we rarely see offered by other providers. It also offers a 10-year term on fixed-rate mortgages, which may be useful for well-capitalized borrowers seeking to minimize their interest expenses.
Home Equity Products
|Home Equity Term *||APR|
- Assumes LTV ratios of 80% or less *
Homeowners looking to refinance, cash out or purchase an investment property can take advantage of PenFed's home equity options: these are offered in 60-, 120-, 180- and 240-month terms, at various rates depending on your loan-to-value (LTV) ratio. Seasoned borrowers seeking to purchase investment properties can also take advantage of PenFed's 10-year balloon mortgage, which can help reduce costs for short-term borrowers who intend to refinance or sell their properties prior to loan maturity.
Investment Property Products
|10-year balloon mortgage||4.32%|
|60-month home equity loan||7.24%|
|144-month home equity loan||7.24%|
- Home equity products assume LTV ratios of 80% or less *
The majority of the mortgage application process is conducted online, and an agent will represent PenFed at closing when you're ready to get funding. PenFed offers a level of transparency and convenience that isn't always offered by all mortgage lenders. Its unique payment and closing cost calculator allows borrowers to obtain rate quotes across a variety of different loan structures, which helps users evaluate their potential transaction costs and monthly payments under multiple point structures.
Finally, borrowers struggling to meet their mortgage payments may be able to take advantage of Fannie Mae's Home Affordable Modification Plan or PenFed's in-house loan modification process, depending on whether your loan is serviced by Fannie Mae. Both of these programs offer relief for borrowers experiencing financial hardships due to loss of income or other extenuating circumstances. Not all lenders offer these types of relief for mortgages, which underscores the flexibility gained from obtaining a mortgage through a credit union.
Where Can You Get a Mortgage With PenFed?
Members located in any of the 50 states, Washington D.C. as well as members stationed in military bases overseas (including Guam, Puerto Rico and Okinawa), will be able to apply. However, prospective applicants will need to be a verified member of PenFed to apply. To join PenFed, you must be a member or employee of the U.S. armed forces, U.S. government or a select number of employer groups or associations. Family members of military personnel or U.S. government employees are also eligible to apply.
For those who don't fall under the categories above, you can still qualify for a PenFed membership by joining Voices for America's Troops or the National Military Family Association, which are both volunteer organizations established to support America's troops. Membership in either association will allow you to apply for a membership with PenFed. Visit PenFed's website for full details on how to join.