Costco (NASDAQ:COST), the world’s largest warehouse chain, has launched a mortgage program in partnership with First Choice Bank and 10 other lenders. This follows on the heels of its health insurance partnership with Aetna. (See Costco Partners With Aetna To Sell Health Insurance.)
It intends to leverage its customer base and wider presence to market this program. Costcofinance.com, Costco’s mortgage lending site, gathers rates from different lenders and provides a summary of competitive quotes to its customers. In return, it gets paid for marketing this service to its customers. Costco traditionally competes with warehouse club operators including BJ’s Wholesale Club (NYSE:BJ) and Sam’s Club, which is part of Wal-Mart (NYSE:WMT), in addition to other retailers like Best Buy (NYSE:BBY) and Target (NYSE:TGT).
This program is especially beneficial for its Goldstar, Business and Executive members who will have to pay less than $750 in lender fees since Costco has placed fee caps on its lending partners. Considering standard lender fees of $1,000-$2,000, this program can result in huge cost savings for its members. Costco’s tie-up with lenders will also provide a broader and more competitive rate offering to its customers. This could mean substantial savings as even a slight change in rate can result in huge savings or reduced costs over the life of the loan.
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The move to offer mortgage services is an attempt by Costco to diversify its operations. Competition in the retail industry is intense, and it has become essential for retailers to innovate and look for new avenues for growth. The mortgage program requires little to no investment from Costco. The final lenders are responsible for rate quotes, credit checks and other regulatory requirements. Costco is merely a bridge between customers and the lenders, and it will leverage its huge customer base and wide presence to market this program. If the program succeeds, this could bring in additional revenues for the company.