How to Refinance a Mortgage

The Internet is an excellent tool for refinancing your home mortgage and can save you thousands of dollars; however, you need to know that big named mortgage companies run scams online every day. These are companies you see advertising on television and if you’re not careful you could overpay thousands of dollars for your next mortgage. Here are several tips to help you protect yourself when refinancing your home loan on the Internet.

When Lenders Compete You Lose

Have you seen those commercials on television about making banks compete for your business when taking out a mortgage? It sounds great…mortgage loans are a fiercely competitive industry and anything that gets lenders competing for your business can’t be a bad thing right? Wrong!

What is Lending Tree Really?

The first thing you need to know about Lending Tree is that they are not a mortgage lender and actually have nothing to do with mortgage loans whatsoever. Lending Tree and many of the other big named sites you see on the Internet are simply lead generation sites. They put up a flashy website, advertise on television, and sell your information to the four highest bidders. Lenders are competing for your personal information, not your business. Once these lenders have your information you will start receiving phone calls and emails soliciting mortgage loans.

The fact that you have lenders calling you isn’t really the problem with lending tree. The real problem comes from the fee they slip into your loan without your knowledge. Lending Tree for example tells you that they do not charge you a fee for using their service; however, the fine print says otherwise.

Always Read The Licenses & Disclosure Pages

If you read the fine print on Lending Tree’s Access and Disclosure statement you will find that while Lending Tree Claims they are not charging you a fee for their services, you will have a charge on your Good Faith Estimate that will be paid to them by the lender. Because you’re paying the lender the fee for Lending Tree they claim their service is free to use; however, the money still comes out of your pocket even if it’s being paid by the lender. This is only the tip of the deceptive advertising.

Reading further on this Licenses and Disclosure page reveals not only will you be charged a fee for filling out the form on Lending Tree’s website but this fee will be as much as $1,300. That’s $1,300 you’ll have to pay just for filling out your name and address on Lending Tree’s form!

Not only is this deceptive advertising on Lending Tree’s part but this is a ridicules fee to charge someone for selling their information to the highest bidder. Lending Tree had a class action lawsuit filed in 2006 for unfair business practices and deceptive advertising. Is this a company you want involved with your next mortgage loan? You can learn more about protecting yourself from predatory lending practices when refinancing and ways to save money in the process register for a free mortgage DVD.

Coming up with the necessary down payment to purchase your home can be difficult. For many people achieving the dream of homeownership is only possible with a 100% mortgage loan.

Here are the basics you need to know about so called “no money down” or “no down payment” loans. 100% mortgage loans are still common with competitive mortgage rates. This makes it easier for homebuyers with little or no down payment to purchase homes, even with credit problems.

100% Mortgage Loan Basics

Despite the recent credit crisis, 100% mortgage financing is still possible for the average homebuyer. There are two basic options available to the average homeowner for 100% financing.

PMI Loans: Many lenders require Private Mortgage Insurance (PMI) for any homeowner with less than a 20% down payment. Private Mortgage Insurance can be expensive and could add hundreds of dollars to your monthly mortgage payment.

If you’re not familiar with Private Mortgage Insurance this insurance protects the lender from losses if you default on your loan. In the event of foreclosure the insurance pays the lenders expenses; this insurance does nothing to protect you as a homeowner. If you have poor credit there is little you can do to avoid paying PMI. If you have good credit the second option could save you money.

80/20 Mortgage Loans: 80/20 loans are also called “piggyback loans.” Taking out an 80/20 loan allows you to avoid the expense of Private Mortgage Insurance because your primary lender is only financing 80% of your home. You will have a second “piggyback” loan for the remaining 20%. This second loan is typically with a different lender and will carry a higher mortgage rate because this lender is assuming great risk than the primary lender. The downside of an 80/20 loan is that you will have two mortgage payments to make each month. Fall behind on either mortgage and you could lose your home to foreclosure.

100% Mortgage Loan Risks

There are financial risks involved with 100% mortgage loans. Primarily, because you are financing the total value of your home, you will have next to no equity in the property. If home values in your area decline you could find yourself owning more than your home is worth. You can learn more about your mortgage options, including ways to minimize your financial risk and save thousands of dollars in the process by registering for a free mortgage DVD.

If you’re in the market for a new mortgage and are searching for lower mortgage rates, there are several things you need to know about the rate quotes you receive. Many homeowners think that comparing offers from several different lenders is all they need to get the best deal; however, what most people don’t understand is that they are simply comparing retail mortgage rates with the same markup. If you really want lower mortgage rates you’ll need to find someone willing to offer you wholesale rates without paying garbage fees. Here are several tips to help you refinance your mortgage with a wholesale mortgage rate and save thousands of dollars in the process.

What Are Wholesale Mortgage Rates?

Wholesale mortgage rates are offered by a certain type of mortgage lender that does not do business with the public directly. These wholesale mortgage lenders offer their best rates to mortgage brokers and other retail mortgage companies that sell loans to the public for a commission. Many people think that by contacting one of these lenders directly they can refinance with a wholesale rate; however, wholesale lenders have retail branches that deal with the public and do not offer wholesale mortgage rates. In order to refinance your loan with a wholesale rate you’ll need to enlist the help of an honest mortgage broker willing to give you access to these rates.

Mortgage Brokers Work For a Commission

The problem with refinancing your home loan with a mortgage broker comes from the way that brokers are compensated. Mortgage brokers are paid for their services in two ways. Most brokers charge you an origination fee for their services. This fee could be one percent or more of your loan amount; however, one percent is a reasonable amount to pay for your mortgage broker’s services. The second method your broker receives compensation is from kickbacks the lender pays for overcharging you with your mortgage interest rate. Many brokers mark up the mortgage rate you qualified because lenders pay a commission of one percent for every .25% they overcharge you. This commission is called Yield Spread Premium and is the reason that most homeowners overpay when refinancing their mortgage loans.

Yield Spread Premium Can Be Avoided When Refinancing

Most brokers get defensive or even angry when questioned about Yield Spread Premium. And why wouldn’t they? This markup of your mortgage interest rate can double, even triple their commission on your loan. You can avoid paying a higher mortgage rate with Yield Spread Premium by finding a mortgage broker willing to work for the origination fee alone, without this kickback from the mortgage lender.

Shop Around For Honest Mortgage Brokers

You can start your search for an honest broker to refinance your mortgage by searching the Internet for an “Upfront Mortgage Broker” in your state. Upfront mortgage brokers charge a flat fee for loan origination without charging Yield Spread Premium on your loan. The Upfront Mortgage Broker’s Association maintains a registry of brokers on their website upfrontmortgagebrokers.org that is categorized by State.

If there are no members in your State you can find the right broker by contacting mortgage brokers found in the phone book. Start by telling these brokers that you understand Yield Spread Premium and will not accept any loan offers that include this markup.

It is usually easier to negotiate this type of deal with a mortgage broker that has their own business as those working for a large brokerage firm may not have the authority to give you the deal you are looking for. You can learn more about finding the right kind of mortgage broker to refinance your home loan without paying Yield Spread Premium and other garbage fees by requesting a free mortgage refinancing DVD.

If you’re considering refinancing your mortgage for any reason and are thinking of taking out the new loan from your bank, there are several very good reasons why you should not do this. While it’s true that mortgage brokers have a reputation for overcharging their customers, banks are actually worse due to loopholes the laws requiring lenders to disclose their profit margins. Here are several tips to help you avoid paying too much when refinancing your home mortgage loan.

Real Estate Settlement Procedures Act (RESPA)

You might have heard of the Real Estate Settlement Procedures Act which requires mortgage lenders to disclose their fees and markup. What you might not know is that thanks to the Banking Lobby your bank is exempt from this legislation and not required to disclose any this information to you. Banks take full advantage of this loophole in the law by charging their customers the interest rate markup known as Service Release Premium. Fortunately, once you understand how wholesale mortgage rates work this markup is easy to recognize.

What is Service Release Premium (SRP)?

Banks are in the mortgage business to make money. Banks know the rates that other lenders offer and they know the rate you could get from a wholesale lender. The mortgage rate your bank offers is marked up to include Service Release Premium.

This is a “premium” mortgage rate and is designed to boost the banks profits when your mortgage loan is sold to investors. Once you close on your mortgage the bank immediately turns around and sells your loan on the secondary market.

Banks know that loans with above market mortgage rates bring them higher profits and this is why Bank mortgage rates will never be competitive. Banks rely on the fact that the majority of homeowners do not understand mortgage rates and that they are exempt from the Real Estate Settlement Procedures act to fleece their customers out of thousands of dollars.

Don’t Trust Your Banker’s Rate Sheets

Most bank employees have never heard of Service Release Premium and will swear to you that their rates have not been marked up. They will even show you the Bank’s rate sheets for that day claiming that their rates are competitive. The problem with the Bank’s rate sheets is that they already have Service Release Premium built into them. Only by comparing the banks rates to the wholesale mortgage rates offered by a broker can you spot the bank’s markup. Because the bank is not required to disclose their markup of profit margin for your loan you will never know exactly what your bank is charging.

Upfront Mortgage Brokers Can Save You Thousands

Most mortgage brokers do not offer their customers wholesale rates. Just like banks these mortgage brokers mark up the interest rate to earn a commission from the lender. When this markup is made by a mortgage broker it is called Yield Spread Premium. Because you are already paying this person an origination fee for arranging your loan, the markup is not only unnecessary, but is dishonest.

There are honest mortgage brokers willing to work for a one percent origination fee. These brokers are frequently called “Upfront Mortgage Brokers” because they disclose a flat fee upfront and do not charge Yield Spread Premium with their loans. You can learn more about refinancing your mortgage without paying Service Release Premium or Yield Spread Premium by registering for a free mortgage DVD.

Many homeowners rely on the Good Faith Estimate when comparison shopping for a mortgage loan. While it’s true that the Good Faith Estimate gives you more information than the Annual Percentage Rate (APR) there are important limitations you need to be aware of before choosing a lender based on this document. Here are several tips to help you choose the best loan offer when refinancing your mortgage.

How do you really know which mortgage is better when refinancing? Do you choose the loan with the lowest mortgage rate regardless of closing costs and other fees? Do you go with a lender claiming to offer no fee mortgage refinancing and hope that you’re getting a competitive mortgage rate? When it comes to refinancing your home the answers to these questions are not black and white but depend on your individual financial situation. In order to make sense of your options when refinancing it helps to understand how loan originators and mortgage lenders make their money.

The first thing you need to know is that mortgage loans are sold on a commission basis. Your loan officer or broker is not interested in giving you a fair and accurate mortgage quote whatsoever; this person is only interested in selling you the loan that nets them the largest commission. To accomplish this goal the Good Faith Estimate that they give you may provide very little truth about the actual costs involved with your loan.

Wait a minute, isn’t the Good Faith Estimate required by law? Mortgage lenders are required by law to provide you a copy of the Good Faith Estimate; however, this document is merely an “estimate” given in “good faith.” We all know that estimates have a nasty habit of changing before everything is said and done. Another problem with your Good Faith Estimate is that your loan officer or broker knows that most people have no idea what wholesale mortgage rates are, or even how they work. Because this person is paid by commission it’s not in their best interest to give you a good mortgage rate. The more you pay when refinancing, the more money they stand to make.

Because your Good Faith Estimate is just an estimate, like many other salespeople, loan officers and mortgage brokers tend to “stretch the truth” in order to get a sale. I say stretch the truth; however, in most cases this means flat out lie. These people know the wholesale rate that your lender approved you; however, they mark this mortgage rate up to get a commission from the lender. This markup of your mortgage rate is frequently omitted from the Good Faith Estimate entirely.

This is why most mortgage quotes you receive are anything but accurate.

Did you know that an honest mortgage broker needs 17 pieces of information before they can quote you an accurate mortgage rate? If your loan officer or broker is not asking you for the following information they are just feeding you a line to get your application processed.

Here is the information need to accurately quote a mortgage interest rate:

1. Loan Type: Mortgage Refinance or New Purchase
2. How Much Are You Borrowing?
3. If Purchasing, Do You Have a Down Payment?
4. What is Your credit score?
5. What Type of Property Do You Have?
6. Will You Be Taking Cash Back?
7. What is Your Employment Status?
8. What is Your Property Address?
9. Is Anything Being Paid in Escrow?
10. What is Your Home’s Value or Purchase Price?
11. Is This Your Primary Residence?
12. What Type of Loan?
13. What Term Length?
14. How Long Have You Been Employed?
15. Do You Have a Bankruptcy?
16. Has Your Property Been Listed For Sale?
17. Are You a US citizen?

If you receive rate quotes without providing this information you are getting a bogus quote. The person quoting you has no intention of honoring the rate they are giving you. You can save yourself a lot of money and future headaches by avoiding this person all together.

The good news is that you can find honest mortgage brokers willing to work for a reasonable origination fee without marking up your mortgage rate. You can learn more about choosing the best mortgage offer for your situation when refinancing, including expensive pitfalls to avoid with a free mortgage refinancing DVD.