Mortgage Refinance Guide

If you’re in the process of refinancing your mortgage with a broker, the answer to this question is important if you want to avoid paying too much for your new home loan. The compensation your broker receives for originating your mortgage is not only based on the fee you pay but includes a kickback from the lender based on how much you agree to pay or overpay.

This lender kickback is the reason that American homeowners will overpay sixteen billion dollars for their home loans this year according to the Secretary of Housing and Urban Development. Here is an explanation of how your broker is paid and what you can do to avoid paying too much for your next mortgage loan.

Origination Points

The first method your mortgage broker is paid for their services is by charging you a fee. This fee is often called “origination points” or an “origination fee.” One point is the equivalent of one percent of your mortgage amount due at closing. How much is reasonable to pay for loan origination? In most cases you should not agree to pay the broker more than one percent for mortgage origination. Any more than one percent and your mortgage broker is taking advantage of you with this fee.

Yield Spread Premium

The second method of mortgage broker compensation that I’ll discuss today is called Yield Spread Premium. This is a fee, also called a P.O.C. charge (Paid Outside of Closing Fee) paid by the lender. You might be asking “If this fee is paid by the mortgage lender, why should I care about it.” The problem with Yield Spread Premium doesn’t come from the fact that your lender is paying the broker a fee, but why this fee is being paid in the first place. Mortgage brokers receive Yield Spread Premium as an incentive for closing loans with above market mortgage rates.

Mortgage Yield Spread Premium is a commission paid to your mortgage broker for overcharging you. That’s right…for every quarter percent you agree to overpay for your new mortgage loan the broker gets a kickback of one additional percent of your loan amount. In most cases this will double, even triple your mortgage broker’s compensation for your loan. The problem with this markup is that most mortgage brokers will never admit that they’ve marked up your mortgage rate and go great lengths to conceal what they’re doing.

How to Recognize Yield Spread Premium

The first opportunity to spot this markup of your mortgage rate is when you lock in your rate. If your mortgage broker actually requests a rate lock from the lender he or she will receive written confirmation of the lock. This rate lock from the wholesale mortgage lender will clearly display any markup of your mortgage interest rate. The problem is that many brokers type up a bogus rate lock confirmation on their own company letterhead that does not include Yield Spread Premium. This rate lock is completely worthless because it did not come from the lender and only serves to hide what the broker did to your mortgage rate.

Many brokers falsify this document and never actually lock in your mortgage rate. When the deal falls through because there was no lock the broker will find a way to switch you a more expensive mortgage product. This is a common bait-and-switch tactic used by many dishonest mortgage brokers. When you lock in your mortgage rate always insist on seeing the actual guarantee from the lender and never accept anything on your mortgage broker’s letterhead.

Yield Spread Premium on Your HUD-1

Your second opportunity to catch Yield Spread Premium on your loan is with the HUD-1 Statement. Your mortgage broker cannot falsify this document; however, you might not recognize the fee as Yield Spread Premium. If your loan includes the lender kickback it will be disclosed on lines 810-811 of the HUD-1. You might see it called “mortgage broker rebate” or “YSP paid to broker.” Whatever dollar amount you find on this line is the kickback your broker receives for overcharging you.

You Can Refinance With a Wholesale Mortgage Rate

Most homeowners don’t understand that they can refinance with a wholesale mortgage rate without paying this “retail” markup. You can find mortgage brokers willing too give you wholesale rates once you know how to negotiate the deal. If you’d like to learn more about negotiating with mortgage brokers for wholesale rates register for our free mortgage video tutorial.

Your monthly mortgage payment amount is determined by the amount you borrowed and the mortgage you qualified. Mortgage rates are currently at their lowest levels since 2005; if your financial situation has changed since you purchased your home you could significantly lower your payment with a lower mortgage rate. Here are several tips to help you decide if this is the right time to refinance your home loan.

Wholesale Mortgages Rates

If you are a homeowner with good credit the current wholesale mortgage rate is 5.5 percent. Refinancing your mortgage with wholesale rates can be tricky as most homeowners don’t understand how mortgage rates are quoted. The rate quotes your receive online and from your mortgage broker are actually “retail” mortgage rates and can be as much as a half percent to a full percent higher than the going wholesale rate.

What Makes Mortgage Rates Retail?

Mortgage brokers are basically commission based salespeople. Your broker is compensated for their work in two ways; you will pay an origination fee for their services and the lender pays a “rebate” to the broker for closing your loan. A reasonable fee to pay for loan origination is one point, or one percent of your loan amount. If you can get away paying less than one percent you’re doing well, but what about the broker rebate paid by the lender? Should you be concerned about this fee since it’s not coming out of your pocket?

The short answer is yes. You should be very concerned about this fee not because the lender is paying it, but why the lender is paying. Broker rebates are paid for one reason and one reason only. This rebate is a reward for closing loans with above market mortgage rates. That’s right; your mortgage broker receives a bonus form the lender for overcharging you. In the industry this “reward” is called Yield Spread Premium and could wind up costing you thousands of dollars in unnecessary finance charges.

The Mortgage Industry Has a Dirty Little Secret…

Here’s an example to illustrate how the broker rebate works. Suppose you refinance your home for $300,000 and your broker tells you that you qualify for a 6 percent mortgage rate. You agree to pay one point for loan origination which is a perfectly reasonable fee to pay the mortgage broker. This fee amounts to $3,000 paid out of your pocket at closing. But what is your mortgage broker not telling you?

Today’s wholesale mortgage rate is 5.5%. If you agree to a 6.0% mortgage rate that means the loan has .5% Yield Spread Premium. Mortgage lenders pay one point for every quarter percent the broker overcharges you. In this example the broker receives an additional $6,000 on top of the $3,000 you’re already paying. That’s $9,000 for a few hours work and that’s only half the problem.

The real stink of Yield Spread Premium comes form the fact the most brokers will never admit what they’re doing with your mortgage rate and never properly disclose this fee. Most mortgage brokers leave it off the Good Faith Estimate entirety, give you a bogus rate lock confirmation instead of the one from your lender and if you happen to catch the rebate on your HUD-1 statement explain the fee away by saying “It’s not coming out of your pocket, don’t worry about it.

What’s Wrong With Yield Spread Premium?

By accepting an above market mortgage rate your payments will be higher than they need be and you’ll be wasting money on unnecessary finance charges. Because this fee is never properly disclosed your mortgage broker is all but lying to you about the loan and taking money out of your pocket. Is this the mortgage you thought you were getting when the broker quoted you a six percent interest rate?

The good news is that you can avoid mortgage broker rebates when refinancing. There are honest mortgage brokers out there that will work for the origination fee alone without marking up your mortgage rate; you just have to find one. A good place to start is the Upfront Mortgage Brokers Association; members of this association agree to conduct their business following certain ethical and professional standards. Not every State has members however; if your State does not you can still find honest mortgage brokers by doing your homework and shopping for the right broker.

You can learn more about refinancing your mortgage with a wholesale mortgage rate by registering for a free DVD. Register today, this mortgage DVD is yours free with no obligation.

If you are in the process of taking out a mortgage to purchase your home or refinance an existing mortgage, doing your homework can save you thousands of dollars by avoiding expensive pitfalls in the loan process. If you’re looking for mortgage loan assistance for your new loan the free videos on this website can help you find a mortgage with a wholesale interest rate. Here are the basics you need to know to avoid being ripped off with your next mortgage loan.

What is a Wholesale Mortgage Rate?

Mortgage rates come in two varieties. There are wholesale rates which are typically not offered to members of the public and the retail mortgage rates offered by mortgage companies, internet sites, and mortgage brokers. If wholesale rates are not offered to the public, how do you go about getting one? In order to get a wholesale mortgage rate for loan you’ll need to enlist the help of a mortgage broker and understand how this person is compensated. Mortgage brokers have access to wholesale rates directly from the lenders. Your broker typically marks up this rate to get a commission from the lender; most often without telling you.

Why Mortgage Brokers Inflate Interest Rates

When a mortgage broker quotes you an interest rate the quote you are getting is for a retail mortgage rate. Yield Spread Premium is the markup your mortgage broker adds to your rate to get a commission from the wholesale lender behind your loan. The problem with this markup is that you are already paying for the broker’s services with an origination fee. Agreeing to a mortgage that includes Yield Spread Premium will double, even triple the compensation that your mortgage broker receives unnecessarily.

Mortgage Loan Assistance

The best advice I can give you about your mortgage is to avoid paying Yield Spread Premium on your loan. The origination fee you pay is more than ample compensation for the broker’s work. Some brokers try and justify Yield Spread Premium by saying that you’d have to pay more points on the loan if the fee wasn’t being paid; however, this is simply not true. Yield Spread Premium exists as an incentive for mortgage brokers to overcharge you and anyone that tells you differently is only thinking about their wallet.

Mortgage Refinancing Video Tutorial

The free videos available from this website walk you through the entire process of taking out a new purchase mortgage or refinancing your existing loan. Topics covered include understand how the mortgage markets work, improving your credit before applying, mortgage rate secrets, and a step-guide-step guide to comparison shopping, applying, and closing on the loan. Register for the videos today, access is free with no obligation.

The FHA Secure mortgage program helps homeowners who are falling behind on their Adjustable Rate Mortgages and could be risking foreclosure. This program is currently limited to homeowners that purchased their homes with Adjustable Rate Mortgages scheduled to reset; however, it could be expanded in the future to include homeowners with Fixed Rate Mortgage loans.

Risky Adjustable Rate mortgages are causing many Americans to fall behind on their payments and are contributing to a record number of mortgage foreclosures in this country. Homeowners that have fallen behind on their payments typically have a difficult time refinancing their loans because they are unable to qualify for a new mortgage. FHA Secure refinancing allows these homeowners to qualify for low interest rate, government insured, fixed rate mortgage loans.

FHA Secure mortgage loans are insured by the government; however, these loans are made through conventional mortgage lenders. These lenders are required to follow FHA guidelines for underwriting mortgage loans and you will have to get a new appraisal on your home. The downside of refinancing with an FHA Secure loan is that you will be required to pay for Private Mortgage Insurance and the premiums will be based on your past credit history. Private Mortgage Insurance lowers the risk of administering this program for the FHA; homeowners with poor credit ratings will be required to pay higher premiums than those with good credit ratings.

The FHA hopes to help 80,000 homeowners with this program and more when the program is expanded. If you are considering refinancing with an FHA Secure mortgage you will need to do your homework and shop for a mortgage that does not include unnecessary markup of your interest rate and junk fees. Many homeowners think that because they are getting a mortgage from the FHA they don’t have to worry about lenders taking advantage of them; however, this is simply not the case. Banks still charge Service Release Premium and wholesale lenders still pay Yield Spread Premium on mortgage loans insured by the FHA.

If you’d like to refinance your home with an FHA Secure mortgage without getting ripped off by a predatory mortgage lender, register for a free video tutorial. Get started today, these videos are yours free with no obligation and will show you how to avoid foreclosure by refinancing your mortgage with an FHA Secure mortgage with a wholesale mortgage rate.

What’s a good reason for refinancing your mortgage loan? Is it always to get the lowest payment or are there other reasons for taking out a new home loan? Many people will tell you that you should “Never” refinance your mortgage unless the new mortgage rate is at least two percent lower than what you’re paying now. This is probably the worst mortgage advice in the history of bad advice.

Refinancing your mortgage could be a good idea for you if there is some financial benefit over the long term. Contrary to popular belief a lower mortgage payment may not have long term benefits, especially if you end up paying more to your lender for your financing. There are a number of perfectly good reasons for refinancing without qualifying for a lower mortgage rate. Many homeowners refinance with a higher monthly payment using a 15 year mortgage to build equity in their homes at a faster rate. Other reasons for a higher payment include borrowing against your equity to make home improvements or consolidate your high interest debts. If your current mortgage is with one of the predatory banks or mortgage lenders you’ve been hearing about in the news there’s no better reason than for refinancing than finding a reputable mortgage company.

So what should you look for when refinancing? Many homeowners obsess over mortgage rates and overlook the unnecessary fees in their Good Faith Estimate. Other homeowners don’t understand the retail nature of their mortgage interest rates and overpay hundreds of dollars every month because their mortgage interest rate has been marked up to give the broker a bonus. The mortgage industry is every bit as bad as a shady used car salesman; homeowners who take the time to do their homework before refinancing can save themselves thousands of dollars and many headaches.

Where to get started doing your homework when refinancing? The first thing you need to familiarize yourself with is Yield Spread Premium. It’s okay if you’ve never heard of this before; it’s not as scary as it sounds. Yield Spread Premium is simply the markup your broker adds to your mortgage rate to get a bonus from your lender. The problem with this markup is that you’re already paying an origination fee for the broker’s work; Yield Spread Premium really just double-dipping in your pocket…a sleazy way to make a buck.

Yield Spread Premium (YSP)

How does this mortgage scam work? Your mortgage broker qualifies you for a specific interest rate when the wholesale lender approves your loan. Most brokers will not tell you the interest rate you qualified or show you a wholesale rate sheet from the lender. Instead they mark up this interest rate based on how much they think you’ll overpay. (Sounds like a used car salesman right?) For every quarter percent you overpay for your new mortgage rate the broker gets a commission from the lender of one percent of your mortgage.

Considering that you’re already paying one percent or more for loan origination, YSP can actually double, even triple your broker’s compensation for originating your loan. Sounds like a good deal for the broker; they’ll even tell you not to worry about this fee on your HUD-1 statement because it’s being paid by the lender. The question you need to be asking is why the lender would pay this fee in the first place. Wholesale lenders make a bundle selling loans with above market interest rates to investors. Yield Spread Premium is an incentive for overcharging you, plain and simple.

Don’t be fooled by a fast-talking mortgage broker…do you really want to be making his boat payment for the next thirty years? You can learn more about refinancing your home loan without being ripped off by registering for this free mortgage refinancing tutorial.