Loan Strategy No. 2: Tie Auto Loan To Tax-Advantaged Mortgage

NORTH HIGHLANDS, Calif. - Credit unions have long been known for their great auto loan deals, but getting the word out about their real estate products still has a way to go, so some credit unions have found a way to tie the two products together and help members get more bang for their buck.

SAFE Credit Union here offers its 121,000 members the chance to take a second mortgage on their home to be used for a new car. As it is part of a mortgage deal, any money over $600 can be deducted on a 1099 form at the end of the tax year. An auto equity program offers another financial product to CU members, while offering home owners the chance to recoup the interest paid on the car loan at tax time.

SAFE CU SVP of Products and Services Sharon Whiteley said the credit union has signed upward of 30 auto equity loans each year for the last several years, although the program hasn't been marketed that much. Whiteley said SAFE CU is making a new push to educate it's members about this auto buying option which is gaining more importance as home values have begun a downward trend, which in turn is tightening equity.

"I really don't think people understand what it is," she said.

Whiteley said an auto-equity program carries the same full disclosure, three-day decision period and full documentation of any type of mortgage. SAFE CU charges a $75 flat fee when recording and removing the loan from the CU's loan books. Most important for any credit union considering auto-equity loans is to make certain the member understands that CU staff aren't telling them what to do with their loans or taxes. While SAFE CU likes the added variety of another loan product for its membership, Whiteley said the member needs to contact a certified tax consultant to decide if they can deduct their loan interest, a service the CU isn't qualified to do.

"The interest may or may not be tax deductible. We do not give advice on that. That's not our expertise," Whiteley said.

SAFE CU members with good credit, and of course, owning their own home, can apply for the auto equity loan, but Whiteley said their mortgages don't have to be with SAFE CU. Whiteley said the California Credit Union League supplied SAFE CU with all the needed documentation for the auto equity program and she advises interested credit unions to do the same. Whiteley said she likes the program so much that she and her husband have bought their last three cars with an added mortgage to their home.

"For people like that, these are valuable. Those who use it, like it. We think it's a nice advantage," Whiteley said. "Any credit union could do this program. It's not much to maintain."

One credit union that has offered auto equity loans to its 14,000 for more than a decade, is Matadors Community Credit Union in Chatsworth, Calif. Matadors VP of Lending Sandy Kelleher echoed Whiteley's remarks about member retention and the need to educate members on what an auto-equity program is and how it might help their financial well being. Best of all, Kelleher said she isn't aware of any bank doing these types of loans, which helps separate Matadors from its competition.

"It gives you a great advantage over someone who doesn't do it. It's one more option and helps with member retention," Kelleher said. "The loans do stay longer. We've never heard of someone not getting a tax deduction. We've never had a problem with it."

Marnie Nemcoff, Matadors VP of marketing, said the credit union had also looked to the California league for initial guidance and documentation, advising other CUs to do the same.

"They had done the research for us. Why reinvent it?" she said.