Home Mortgage Refinancing Guide

If you have been considering a home equity loan but need to refinance your existing mortgage, cash back refinancing is an affordable alternative to home equity lines of credit and second mortgage loans. Cash back refinancing is a simple process compared to other home equity loans; you will be refinancing your existing mortgage for more than you owe on the original loan. The difference between the two loans is the amount you receive in cash at closing.

The cash you receive at closing can be used for any reason: home repairs, debt consolidation, or your child’s education are all common reasons for borrowing against equity in your home. When you refinance your mortgage you will be required to pay expenses out-of-pocket; these expenses include lender fees, points, and closing costs. Mortgage refinancing expenses vary widely from one lender to the next so it is important to comparison shop from a variety of lenders and brokers to ensure you are not overpaying for your new mortgage.

When you comparison shop for a new mortgage it is important to compare all aspects of the loan offers, not just the interest rates. Homeowners that neglect to compare all aspects of their loan offers overpay for closing costs and other fees. Depending on the type of lender you choose the lender may even charge you undisclosed fees; these undisclosed fees are why you should never take out a mortgage loan from your bank. Banks are exempt from the disclosure laws in the United States that protect homeowners, and are not required to inform you of their fees, markup, and profit margins from your loan.

Another nefarious fee mortgage companies and brokers slip past their borrowers is called Yield Spread Premium or YSP. Yield Spread premium is a fancy term for how much the broker or company overcharges you on the interest rate. Mortgage companies and brokers are retail sources for mortgage loans in the primary market. These companies quote you an interest rate given to them by the wholesale lender. Your mortgage broker or company often inflates the interest rate they quote you in order to receive a bonus from the wholesale lender. The difference between the rate quoted to you and the rate provided by the wholesale lender is the Yield Spread Premium. Your mortgage company receives a bonus of 1 point, or 1% of the loan amount for each .25% they overcharge you on the interest rate.

How can you avoid paying Yield Spread Premium? To learn how to recognize this retail markup of your interest rate and other common homeowner mistakes that cost thousands of dollars, register for our free Mortgage Refinance Information guidebook.

If you are a homeowner refinancing your mortgage you never want to overpay for the new loan. To avoid making costly mistakes when refinancing your mortgage it is important to do your homework and research mortgage lenders prior to applying. The type of mortgage lender you choose will affect how much you pay or overpay for the financing. Here are the basics of Yield Spread Premium and how it affects your mortgage loan.

The mortgage marketplace is composed of two parts. There is the primary or retail mortgage market comprised of banks, brokers, and your local and online mortgage lenders. The secondary mortgage market is composed of investors and pseudo-government organizations such as Freddie Mac that routinely buy and sell mortgage debt. When you refinance your mortgage loan the mortgage company or broker you choose is selling you a product, just like a toaster. Once your loan is finalized, the mortgage company will turn around and sell your mortgage to the secondary market. Their profit on the secondary market depends on how much they overcharged you for your new mortgage loan. This is Yield Spread Premium; a fancy term for how your mortgage broker or lender is ripping you off.

The way Yield Spread Premium works is the wholesale lender will provide your mortgage broker or mortgage company with an interest rate guarantee for the loan. The mortgage broker or mortgage company will mark up the interest rate in order to collect a bonus from the wholesale lender. If for instance, you qualify for a 6% interest rate and the mortgage broker quotes you a rate of 6.75%, the Yield Spread Premium or YSP is .75%. The mortgage broker is actually receiving a bonus for overcharging you this amount; they receive one point or 1% of the loan amount for each .25% they get you to overpay for your loan. In this example if you were borrowing $200,000 to refinance your home, the broker would receive a $6,000 bonus for overcharging you!

How can you avoid paying Yield Spread Premium when refinancing your mortgage loan? Register for our free Mortgage Refinance Information guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage” to learn more.