Portfolio loans are loans a lender retains as investments, instead of selling on the secondary market. For borrowers, there can be advantages to portfolio loans because the terms are often different than those on loans lenders want to be able to package for resale. Small banks and credit unions are more likely to be portfolio lenders and people who are not sure can ask loan officers about how the financial institution handles loans. Using a broker can be an excellent way to access good deals on portfolio loans.
One issue with these loans is choosiness on the part of lenders. Lenders want to make sure their investments will yield income, and can have higher standards when it comes to financing portfolio loans. They do not want to make high risk loans, as they will have to bear the costs of a default. It is possible for the loan to require a higher down payment or for the lender to request a more stringent property inspection to protect its interests.
These loans may also come with more flexibility. The lender does need to abide by standards for loans sold on the secondary market, allowing for more unusual financing arrangements, as well as a greater range of option with portfolio loans. Lenders may also be more willing to work with people on refinancing and other loan adjustments because they handle the loans in-house and have an incentive to keep borrowers happy.
A portfolio lender sometimes offers different interest rates. While people may need to meet a higher standard to access the loan, the interest savings can translate into a substantial sum over the life of the loan, and this can be a distinct benefit. Portfolio lenders may also provide incentives like cash back at closing and other benefits to entice borrowers, depending on the economic conditions and a borrower's credit rating.
With portfolio loans, the loan will never be sold on the secondary market. People will make payments to the same lender over the course of the loan and can count on being able to contact the lender directly if they have questions or concern. Other loans can be sold and may change hands multiple times. This can make it difficult to determine who to contact about loan servicing. Being able to access local and personalized service is a distinct benefit for some borrowers, who may prefer the reliability of portfolio loans to the potential unknowns of the loans a bank plans to sell in the future.