How to Refinance a Mortgage

If you’re considering a “no cost” or “no fee” mortgage loan for your home loan there are several things you need to know about these loans to avoid paying too much. Whenever lenders talk about “no fee” mortgage loans they are always trading off a higher mortgage rate in exchange for lender fees paid at closing. Here are several tips to help you avoid falling for the “no closing cost” lie with your home mortgage loan.

What are no cost mortgage loans? No closing costs loans are simply a gimmick to get your business. There will always be third party closing costs that cannot be waived…if your lender is “waiving” these costs they may be paying them for you; however, they will mark up your mortgage rate to cover the cost.

When you take out a mortgage the person arranging your loan typically slips .50 to .75 percent markup of your interest rate to get a commission. If you take out a no cost mortgage you will have this markup plus as much as a full point markup from the lender. This higher mortgage interest rate can result in paying hundreds of dollars extra each month that you keep the loan. This is true of both the mortgage lenders and banks you see offering “no closing cost mortgages” as well as the “flat fee” loans.

Suppose you take out a $350,000 mortgage to purchase your home. The mortgage rate you qualify for paying your closing costs is 6%; however you elect to take a 6.75% mortgage to avoid paying closing costs. Your monthly mortgage payment at 6.75% on a 30 year fixed rate loan will be $2,270 per month. If you paid the closing costs upfront your monthly payment at 6% would have only been $2098. That’s an extra $2,064 you’ll pay every year you keep the loan.

In five years this “no fee” mortgage has cost you a whopping $10,320…money you’d still have in your pocket had you elected to pay your closing costs up front. You can learn more about saving money on you home loan while avoiding unnecessary markup of your mortgage rate and garbage fees with my free video tutorial.

Home mortgage rates are at near all time lows and many of you might be wondering how to predict when they will bottom out. Mortgage interest rates are extremely difficult to predict; sometimes when the Federal Reserve lowers short term interest rates mortgage interest rates actually go up. Sometimes when the stock market takes a hit and bond yields are up mortgage rates go down. The truth is no one can actually predict when mortgage rates are going to bottom out…anyone that tells you can is selling you a loan.

How can you get the lowest mortgage rates?

Instead of trying to predict when mortgage rates will bottom out you can save yourself thousands of dollars by concentrating on what aspects of your mortgage rate you can control. There is one factor affecting your mortgage rate that 90 percent of homeowners have never heard about…namely the commission based markup of your interest rate. You might thing that when you apply for a home loan the lender runs your credit, looks at your qualifying ratios, and will approve your loan with the interest rate you deserve. This simply is not the case.

Beware Your Loan Originator

Your mortgage company or broker you choose when taking out a mortgage actually determines whether or not you’ll pay too much for your next home loan. Pick the wrong person for the job and you’ll overpay thousands of dollars every year you keep this mortgage. All because of a little known fact called Yield Spread Premium. Simply put…this is the commission based markup of your interest rate. The broker arranging your mortgage gets paid in two ways. They get paid by charging you an origination fee for their work and they get paid by marking your mortgage rate up for a kickback for lender.

How Yield Spread Premium Works

Yield Spread Premium is a percentage of your home loan amount created when the broker or mortgage company locks and closes your loan with a higher than market interest rate. When you get approved for your home loan the lender approves you for a certain mortgage rate, say 5.5%. The broker turns around and marks this up telling you that you qualified for 6.25% because the lender pays them 1% of your loan amount for every .25% they markup up your loan.

Suppose you’re refinancing your home for $200,000 taking out a fixed rate loan for thirty years will get you a payment of $1,231 at 6.25%. If you had gotten the mortgage rate you deserve at 5.5% your monthly payment would be $1,135 per month. That’s $1,152 that you’re throwing away every year because your mortgage broker took advantage of you!

Mortgage Rates Predictions

As you can see it’s much more important to make sure your loan does not include Yield Spread Premium than it is to try and make mortgage rates predictions. When you avoid Yield Spread Premium you’ll be taking advantage of wholesale mortgage rates and can negotiate with your broker to pay only a one percent mortgage origination fee. There are honest mortgage brokers out there that do not abuse Yield Spread Premium; you just have to find the right person for your loan. You can learn more about finding the right person to arrange your next mortgage without taking advantage of you by registering for my free home mortgage video tutorial…and don’t let anyone pull the wool over your eyes making meaningless mortgage rates predictions.

Most people think that to find the lowest mortgage rates you have to find the best mortgage lender and this just simply isn’t the case. The person arranging your loan has more to do with your mortgage rate than you think…choose the wrong person for the job and you’ll overpay thousands of dollars every year you keep the loan.

What I’m talking about here has nothing to do with your credit or qualifying ratios; it’s all about the markup of your mortgage rate for a commission. Here are the basics you need to know before refinancing your home loan to get the best mortgage rates.

Understanding Mortgage Rate Quotes

Most of the rate quotes you see online are simply garbage. In order to accurately quote you a mortgage rate your mortgage broker needs sixteen pieces of your personal financial information. If you get quotes without providing the intimate details of your finances the person you’re dealing with has no intention of honoring that rate. Assuming that you have provided this information the quotes you receive are not the mortgage rates you qualify, they have been marked up to get a commission from the lender behind your loan.

What is Commission Based Markup?

Most brokers charge an origination fee to you for their services. This fee is disclosed on your Good Faith Estimate and HUD-1 settlement statement. What your broker isn’t telling you is that they get paid by the lender also for marking up your mortgage rate. This markup is what makes mortgage loans “retail” products. Just like buying a car where the dealership markups up your car for profit the mortgage broker marks up your loan to make a buck. This is considered dishonest by many because you’re already paying an origination fee for their work and this markup can cost you thousands of dollars every year.

Yield Spread Premium

The technical term for the fee paid by the lender is Yield Spread Premium. Basically the way it works is the lender pays your broker .25 percent of your home loan for every quarter percent they overcharge you. You might think that a quarter percent isn’t much but in a moment I’ll show you what this markup does to your mortgage payments. Yield Spread Premium is rarely disclosed on the Good Faith Estimate and can be hard to recognize on your HUD-1 statement. The best way to avoid this unnecessary markup is to be upfront with your mortgage broker about your intentions for the loan.

Here is an example to illustrate the markup of your mortgage rate by the broker. Suppose you are refinancing your home for $250,000 and the broker quotes you a rate of 6.75 percent with an origination fee of 1.5%. You’ll pay the broker $3,750 at closing for this fee. Assuming that you take out a 30 year home loan with a fixed mortgage rate your monthly payments for this loan will be $1,622. What your mortgage broker isn’t telling you is that you actually qualified for a 6% mortgage rate and they’ve marked it up for the Yield Spread Premium. If you had actually gotten the mortgage rate you deserve in this example your monthly payment would be $1,498. This is a difference of $1,488 every year you keep this loan…money you’ll pay for no good reason!

Refinance With Wholesale Rates

Homeowners who learn to recognize Yield Spread Premium can find mortgage brokers willing to work without the markup. It is possible to refinance your home paying only a one percent origination fee saving thousands of dollars every year. You can learn more about doing this yourself by registering for my free home loan refinancing video tutorial.

If you are looking for a mortgage company for your South Carolina home loan there are several things you should know about rate quotes before choosing one. The rate quotes you receive on the Internet and from your South Carolina mortgage companies all include commission based markup that could result in overpaying thousands of dollars every year you keep the loan. Here are the basics you need to know about mortgage rates before choosing a mortgage company in South Carolina to purchase or refinance your home.

The commission based markup of your mortgage rate is the industries dirty little secret. Your mortgage company tells you that you qualified for a specific interest rate when you actually were approved for a much lower rate. South Carolina mortgage companies do this because the lender behind the loan pays them a commission for overcharging you. This commission is called Yield Spread Premium and according to the Secretary of Housing and Urban Development is responsible for homeowners in the United States overpaying sixteen billion dollars every year.

How Yield Spread Premium Works

Suppose you purchased your South Carolina home for $350,000 and qualified for a 7% mortgage rate. You used a traditional fixed rate mortgage to purchase your home with a 30 year term length and your payments have been $2,328 but what you don’t know is that you actually qualified for a 6.25% interest rate and the mortgage company marked it up to get a bonus from the lender. Your mortgage company charged you a fee from originating your loan and then took a kickback from the lender of 3% of your loan amount for overcharging you.

If you had purchased your home at 6.25% instead of 7% your mortgage payment would have been only $2,155. The first year you had your home you threw away $2,076 because your South Carolina mortgage company lied to you about your rate. After just five years you’ve thrown away $10,380! Can you see why choosing a mortgage company that does not include Yield Spread Premium with your loan is the most important aspect of the new mortgage?

Yield Spread Premium Can Be Avoided

When you avoid this unnecessary markup of your mortgage interest rate you have the ability to refinance with wholesale mortgage rates. Doing this for yourself is easier than you think…you just need to find the right mortgage company or broker for the job. You can refinance your South Carolina mortgage with a wholesale mortgage rate and only pay a one percent fee to your mortgage company or broker if you know how to go about this. To learn more about finding the right South Carolina mortgage company and avoiding junk fees, register for my free video tutorial.

If you’re like many Florida homeowners refinancing mortgage loans, finding the lowest mortgage rate is your primary concern when refinancing. Getting the lowest possible Florida mortgage rates takes more than just comparison shopping; you’ll need to understand how rate quotes work to get the best deal. Here are several tips to help you find the best mortgage when refinancing your Florida home loan.

Mortgage rate quotes

With the exception of Bank loans, mortgages are retail products resold by mortgage companies and brokers for profit. Mortgage brokers make their profits by charging you a fee and by marking up your mortgage rate. The quotes you receive when shopping for Florida mortgage rates all include markup by the broker to give them a commission.

The commission paid by the mortgage lender is called Yield Spread Premium and avoiding it needs to be your number one priority when refinancing your home. Yield Spread Premium Sounds scary but it’s a relatively simple concept to wrap your head around. When a lender approves your application they are approving you for a certain “wholesale” mortgage rate. Your mortgage broker marks this rate up to get a kickback from the lender…for every quarter percent you agree to overpay the broker gets paid one percent of your mortgage amount.

Florida Mortgage Rates and You

The problem with this commission based markup of your mortgage rate is that it’s never properly disclosed or explained. Yield Spread Premium adds thousands of dollars to your mortgage payment every year that you keep that loan, money you’re paying because the broker took advantage of you. Here’s an example to illustrate Yield Spread Premium and Florida mortgage rates.

Suppose you’re refinancing your Sarasota home for $300,000 with a fixed rate 30 year mortgage. The broker quotes you a mortgage rate of 7%….you’ve had some dings on your credit and need to consolidate your home equity loan so you agree to the loan. Your mortgage payment at 7% interest is $1,995 per month.

What your mortgage broker isn’t telling you is that you actually qualified for a 6.5% mortgage rate and they’ve marked it up to 7% to get a 2% commission from the lender. This commission is paid in addition to the 1% origination fee that they’re charging you. The broker walks away with 3% and you get stuck paying more than you need to…but exactly how much more?

The same loan with a 6.5% mortgage rate has a monthly payment of only $1890! That’s an additional $1,260 you’ll be paying every year just to give your mortgage broker a bonus. Over the next five years this balloons up to $6,300! How many other uses do you have for your own money besides giving it to someone that lied to you?

The good news for the Sarasota Florida homeowner in this example is that Yield Spread Premium can be avoided. By doing your homework you can learn to recognize this unnecessary markup and avoid junk fees in the process. You can learn more about doing this for your home by registering for my free mortgage video tutorial.