Mortgage Refinance Guide

If you are considering mortgage refinancing with a Mortgage Broker, understanding how retail mortgage loans work can save you thousands of dollars. Mortgage Brokers routinely markup the interest rate quoted to them by wholesale lenders they represent. This retail markup of your interest rate by the Mortgage Broker is called “Yield Spread Premium,” and is a fancy term for ripping you off. Here are several tips to help you avoid paying retail markup on your next mortgage when dealing with a Mortgage Broker.

Let’s face it, many homeowners rush through mortgage refinancing without doing proper homework for such a major purchase. Relying on a Mortgage Broker to find you a loan is the ultimate convenience; sadly, Mortgage Brokers don’t have your best interest at heart when it comes to your interest rate.

Mortgage loans are simply retail products just like televisions or toasters. If you can adopt the same mentality when purchasing a new TV with your Mortgage Broker, you can save yourself a lot of money and headache. Now, you may ask how does the Mortgage Broker overcharge you when everything is spelled out on the Good Faith Estimate? To answer this question you need to understand how the retail side of the mortgage industry works. When you deal with a Mortgage Broker they will contact a wholesale lender on your behalf, that lender qualifies you for a specific interest rate. The wholesale lender gives your Mortgage Broker a written interest rate guarantee. The Mortgage Broker turns around and gives you another written guarantee for a higher rate.

Here’s the big problem. The higher interest rate is going to cost you thousands of dollars and the Mortgage Broker pockets a bonus for ripping you off. Sadly, that’s how Yield Spread Premium works and if you haven’t learned how to recognize and avoid paying retail markup of your mortgage, you are being cheated by your Mortgage Broker.

Here’s the scenario. Suppose you are applying for a mortgage with a Mortgage Broker and the wholesale lender that Mortgage Broker represents qualified you for a 6.25% interest rate. The Mortgage Broker marks up your interest rate to 6.75% on a $275,000 mortgage loan. You pay the Mortgage Broker origination fees of 1.5%, all the while thinking you got a good deal. What’s more, only the Mortgage Broker and the lender know that you were overcharged .50% on your loan. The Mortgage Broker receives a bonus of one point, or 1% of your loan amount for every .25 you overpaid. In this example, the Mortgage Broker receives $5,500 as a bonus for ripping you off. As if that’s not enough, the Mortgage Broker pocketed your origination fee.

Now I don’t know about you, but I hate overpaying for anything. How do you avoid overpaying for your next mortgage loan when working with a Mortgage Broker? Register for our free mortgage guidebook: “Five Things You Need to Know,” and you’ll learn how to refinance while avoiding costly mortgage mistakes.

Mortgage refinancing can be a stressful time for many homeowners. Doing your homework and researching mortgage lenders will save you thousands of dollars on your next loan. When comparison shopping for a new mortgage there are several questions you need to ask when screening potential mortgage companies or brokers. Here are four questions to ask prior to mortgage refinancing that will help you avoid overpaying for your next mortgage loan.

I. The first is not a question; however, you need to inform the mortgage company or broker that you will pay 1-1.5% for origination fees and you will pay closing costs; however, you will not pay Yield Spread Premium or any retail markup of your mortgage interest rate.

II. Can you lock in my mortgage interest rate?

Your interest rate guarantee is important because you will need enough time to close on the new mortgage before your guarantee expires. Some mortgage lenders charge for the guarantee and this fee may or may not be refundable if you decide not to choose that lender.

III. Does the mortgage have a prepayment penalty?

Mortgage lenders use prepayment penalties to discourage refinancing. These penalties are frequently steep and could cost you as much as six months worth of interest on 85% of your original loan amount. Try and negotiate with your mortgage lender to remove the penalty from your loan contract; if you are a homeowner with good credit there is no reason to accept a mortgage that includes a penalty for early repayment.

IV. How much will the closing costs be and how long will it take to close?

Closing costs vary from one mortgage lender to the next so it is important to comparison shop for the most competitive loan offer. You can expect closing costs to run near 1-1.5% of your loan amount. It is important to find out how long it will take to close to ensure you have enough time to close on the new mortgage loan. If your interest rate guarantee expires prior to closing your lender could raise the interest rate and charge you more.

You can learn more about your mortgage refinancing options, including costly homeowner mistakes you need to avoid by registering for our free mortgage guide: “Mortgage Refinancing: What You Need to Know.”

If you are a homeowner considering mortgage refinancing you need to carefully research mortgage loans to avoid overpaying. There are a number of costly mistakes that result in paying too much for the new mortgage loan; however, careful comparison shopping will help you avoid most of these mistakes. Here are several tips to help you avoid overpaying for your new mortgage loan.

When mortgage refinancing there is no amount of comparison shopping will help you avoid paying the hidden cost of Yield Spread Premium. Only homeowners that understand how retail mortgages work are able to recognize retail markup and can avoid paying it. Here are the basics of retail mortgage loans.

Every mortgage company or broker you consider (with the exception of banks) is a retail vendor selling mortgage loans for wholesale lenders. This retail company is considered your loan originator and you will pay origination fees for their services. The origination fees you pay are more than ample compensation for originating your loan; however, retail mortgage vendors have a dirty secret that can result in your paying double for the new mortgage.

Your mortgage company’s dirty little secret is called Yield Spread Premium. When you apply for a new mortgage loan the wholesale lender qualifies you for a certain interest rate and provides your mortgage company or broker with a written guarantee. The company you are working with then provides you with a separate written guarantee of a higher interest rate. The difference between the interest rate guaranteed by the wholesale lender and the guarantee you receive from your mortgage company is called Yield Spread Premium.

Why do retail mortgage companies mark up your interest rate? For every .25% the retail mortgage company overcharges you they will receive a bonus from the wholesale lender of one point. One point is the equivalent of 1% of your loan amount. The mortgage company receives this bonus in addition to the origination fee you pay. Here’s an example of Yield Spread Premium in action.

Suppose you apply for a new mortgage and the wholesale lender your broker represents qualifies you for 6.25%. The mortgage company turns around and provides you a written guarantee of 6.75%. By marking up the mortgage interest rate by .50% this mortgage company receives 2 points from the wholesale mortgage lender as a bonus. If you were refinancing your home for $250,000 that mortgage company gets $5,000 in addition to the 1-1.5% of the loan amount you paid for the origination fees. As you can see, paying Yield Spread Premium effectively doubles your cost for the new mortgage loan.

To learn more about recognizing Yield Spread Premium and how to avoid paying too much for your new mortgage, register for our free mortgage guidebook “Five Things You Need to Know before Refinancing Your Mortgage.”

Albuquerque Mortgage

If you are considering mortgage refinancing with a mortgage broker, there are several things you need to know in order to avoid overpaying for your new mortgage loan. By carefully negotiating with potential mortgage brokers on the retail markup of your loan, you can avoid paying thousands of dollars in unnecessary interest and fees. Here are several tips to help you outsmart your mortgage broker when mortgage refinancing.

Mortgage brokers are simply retail vendors for wholesale lenders. When a mortgage broker qualifies you for a loan the wholesale lender provides the broker with a written guarantee of your interest rate. The mortgage broker always marks up this interest rate and provides you with a separate written guarantee. This retail markup of the interest rate by the mortgage broker is called Yield Spread Premium.

Mortgage brokers inflate the interest rate on your loan because the wholesale lender they represent pays them a bonus for overcharging you. For each .25% the mortgage broker raises your interest rate that mortgage broker receives an additional point from the wholesale lender. One point is the equivalent of one percent of your loan amount. The mortgage broker is compensated by the origination points you pay when securing your loan and with this additional fee from the lender. By charging Yield Spread Premium and origination points you are effectively paying the mortgage broker double for your new mortgage loan.

How can you avoid paying the mortgage broker Yield Spread Premium? Insist on seeing the original interest rate guarantee from the wholesale lender. Tell your mortgage broker you will not pay Yield Spread Premium. Tell potential mortgage brokers you will pay the origination fees and closing costs, but will not pay any retail markup of the interest rate. You can learn more about mortgage refinancing without overpaying for the new mortgage by registering for a free mortgage guidebook.

Albuquerque Mortgage

If you are a homeowner that recently purchased your home with an interest only mortgage and are concerned about your payment amount when the interest only period ends, you might consider refinancing the loan. There are a large number of people who purchased their homes using interest only mortgages because of the ease of qualifying; however, many of these homeowners do not fully understand how the loans work. If your interest only loan is due to be converted by the lender, you can expect your payments to go up significantly when this happens.

Should You Refinance Your Interest Only Mortgage?

Many homeowners with interest only mortgages expected their income to go up in the years before their loan is converted. If that increase never came and your budget is already stretched to the limit, refinancing to a fixed interest rate loan could be the only option to keep your home. Choosing a mortgage with the longest possible term length may give you a monthly payment amount that is lower or equal to what you are currently paying.

Save Money When Refinancing Your Interest Only Mortgage

Mortgage interest rates are still very low; if you invest some time researching mortgage lenders and shopping for the most competitive loan offer you can save yourself thousands of dollars when refinancing the interest only mortgage. When you compare loan offers it is important to compare all the fees and closing costs, and not focus entirely on the interest rate. The best way to compare loan offers is to request a Good Faith Estimate from each mortgage lender you consider. Mortgage lenders are required to provide the Good Faith Estimate after receiving your application; however, most will give it to you for simply asking.

Beware Yield Spread Premium When Refinancing Your Interest Only Mortgage

Whenever you take out a mortgage you run the risk of overpaying for that loan. Mortgage loans are commodity products just like televisions or any other appliance. Mortgage companies and brokers are simply retail vendors reselling mortgage products for wholesale lenders. These retail mortgage companies and brokers routinely mark up the interest rate quoted to you in order to receive an additional bonus from the wholesale lender. This markup by your Mortgage Company or broker is called Yield Spread Premium. Because you are already paying origination fees to the Mortgage Company or broker, any retail markup on your interest rate means you are effectively paying double for the new mortgage loan.

You can learn more about refinancing your interest only mortgage without overpaying by registering for free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

Albuquerque Mortgage