Mortgage Refinancing
Information
The first thing you should do before
shopping for a new loan is brush
up on your mortgage terminology and how the process works. A good mortgage
guidebook will have you speaking the lingo like you know exactly what you’re doing. This is
helpful because if your mortgage retailer thinks you know what
you’re doing (even if you don’t) they will be less like to try
and take advantage of you. Just like a car salesman, mortgage
refinancing companies and brokers prey on uninformed
homeowners. Doing
your homework and carefully shopping for the best
mortgage refinancing loan will help you avoid costly mistakes
that prevent the majority of homeowners from realizing the benefits of Mortgage
Refinancing.
Mortgage refinancing is just like purchasing a kitchen
appliance. If you approach mortgage refinancing like shopping
for a dishwasher, you will save yourself thousands of dollars
and many future headaches. Mortgage refinancing loans are
commodities, and just like a dishwasher or toaster oven, they are only worth
what someone is willing to pay for them. Understanding the
retail mortgage refinancing market is the first step to avoiding
costly homeowner mistakes. The retail mortgage refinancing
marketplace is composed of retailers consisting of mortgage
companies, mortgage brokers, banks, and broker-banks. Mortgage
refinancing should never be done with a bank. Broker-banks are
simply banks pretending to be mortgage brokers and should also
be avoided. The reason for avoiding banks and broker banks
is that these lenders are exempt from disclosure laws that
protect homeowners in the United States from predatory lending
practices.
Mortgage Refinancing retailers
sell mortgage products for wholesale lenders. These
mortgage companies and brokers, whether online or brick and
mortar, simply pass quotes from a wholesale lender on to the
consumer. What you might not know about these mortgage
refinancing quotes is that the retail mortgage company or broker
always inflates the interest rate quoted by the wholesale
lender. The retail company cleverly disguises their markup in
the loan documents, overcharging unwary homeowners. This markup
is called “Yield Spread Premium” and is where the majority of
the mortgage refinancing profits originates. How does the
mortgage refinancing Yield Spread work?
Suppose you visit George the
Mortgage Broker. George gives you a mortgage refinancing quote of 6.75%.
This seems like a good interest rate and you sign the Mortgage Refinancing
contract. What you don’t know is that the wholesale mortgage refinancing
lender qualified you for 6.25% and George marked the interest rate up
to 6.75% on the quote he gave you. The additional .5% is the
Yield Spread Premium you overpaid for the loan. Why do mortgage
brokers do this? They receive compensation for their services
with the origination fee you pay; this is clearly documented in
your contract. What isn’t so clear is the inflated interest rate
that the broker is quoting and the additional bonus received from the
wholesale mortgage refinancing lender.
That’s right; George receives a bonus of one point for every
.25% he
scams you with your mortgage refinancing. The wholesale mortgage
refinancing lender gives this bonus (1 point = 1% of your loan
amount) as an incentive to overcharge you for mortgage
refinancing. If your mortgage was for $250,000, George will
receive a tidy bonus of $5,000 for ripping you off and you will
never know it. This is how Yield Spread Premium works and how
every mortgage company and mortgage refinancing broker operates.
Not only does the retail mortgage refinancing company pocket your origination fees, the wholesale lender rewards them
for overcharging you.
How can you avoid paying Yield Spread Premium when shopping
for a mortgage refinancing loan? Homeowners that know
what to look for can easily spot Yield Spread Premium on the
mortgage refinancing Good Faith Estimate and Hud-1 statement. You
can learn how to recognize Yield Spread Premium when mortgage
refinancing along with other strategies to comparison shop for the
most competitive loan offers by registering for our free
Mortgage guidebook: “Mortgage Refinancing: What You Need
to Know.”
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