Home Mortgage Refinancing Guide

If you’re in the process of shopping for a lender to refinance an existing mortgage or for a loan to purchase your home, there are several things you need to know about prospective mortgage lenders. Doing a bit of homework before your refinance will not only help you avoid crooked nationwide lending companies but could save you thousands of dollars. Here are several tips to help you find the perfect lender for your next home loan.

There are literally hundreds of mortgage lenders and banks out there offering mortgage loans. How do you choose the best lender for your situation?

Before I can answer this question it is important to understand the difference between retail and wholesale mortgage rates. Nearly all of the quotes you receive from banks and mortgage companies are retail quotes that include commission based markup. How can you get a wholesale mortgage rate? Many people think that if they contact a wholesale lender directly they can cut out the middleman and the retail quote. This simply isn’t the case…even if you contact a wholesale lender yourself you’ll be dealing with the retail division of that lender and will not get a wholesale rate. The only way to get a wholesale rate is by finding the right mortgage broker to originate your home loan.

How to Shop for a Mortgage Loan

Mortgage shopping means collecting quotes from dozens of lenders and comparing rates, points, and closing costs right? If the quotes you collected on the Internet and from local mortgage companies and brokers were correct this would be the right way to shop for a home loan. The problem is the quotes you receive are not accurate. Most mortgage companies will tell you exactly what you want to hear to get your business…and then switch you to a loan that charges what they want you to pay. How do mortgage lenders do this and get away with it?

Good Faith Estimates Are Not Your Friends

The Good Faith Estimate your banker or broker gives you is just that…it’s an estimate. Given in “good faith”…but what does that really mean? Absolutely nothing…shopping for a mortgage is a lot like dating. Mortgage companies always put their best foot forward to make a good impression and get you to go on that second date. Once they’ve got you that’s when you find out about all the excess baggage in fees and interest rate markup…often too late. What is this hidden interest rate markup? If you spent any amount of time reading the mortgage articles posted on this website you’ll have heard of Yield Spread Premium.

Hidden Commission Fees

Yield Spread Premium creates a hidden commission for your broker. Don’t think you can avoid this hidden commission going with a bank or credit union. While you won’t be paying for Yield Spread Premium with a bank mortgage loan you still have the same markup…only with a different name. When your mortgage rate is inflated by a bank or credit union the hidden commission is called Service Release Premium. Only in this case there’s nothing you can do about it due to a loophole in the Real Estate Settlement Procedures Act. The only way to get a wholesale mortgage rate is with an honest mortgage broker.

You Can Take Out a Mortgage and Pay Only 1%

Paying one percent of your loan amount is a perfectly reasonable fee for the work your mortgage broker does on your loan. There is no reason whatsoever to tolerate any markup of your mortgage rate for Yield Spread Premium to go in your mortgage broker’s pocket. So what is Yield Spread Premium? Simply put, it is a percentage of your loan amount created when the mortgage broker locks and closes your home loan with an above market interest rate. Here’s an example to illustrate the concept.

Suppose your existing home loan is for $300,000. Your mortgage broker closes your new loan at 6.25%. What you don’t know is the lender behind your loan approved you for 5.5%. The spread between what you got and what you could have had creates a hidden bonus for your broker of 3% of your loan amount. This means your broker pockets $9,000 in addition to any of the fees they charge you for loan origination, processing, or other garbage fees found on your Good Faith Estimate. Where does this $9,000 come from? The broker receives a kickback of 1% for every .25% you agree to overpay. In the previous example you overpaid .75% (6.25%-5.5%=.75%) which created 3% of Yield Spread Premium.

What does this mean for you? On a 30 year mortgage at 6.25% your payment will be $1,850 when it could have been $1700. You’re throwing away $150 per month which is $1800 a year just because your mortgage broker lied to you for a commission. I don’t know how you feel about it but $1800 is a lot of money. The good news today is that you can avoid this unnecessary markup of your mortgage rate if you find the right broker to build a relationship with. Do this and you’ll have a win-win relationship for both of you…you get someone to originate your loans without ripping you off and your broker gets a loyal customer for life…clearly a win-win situation for both of you.

How to Find an Honest Mortgage Broker

There are hard-working mortgage professionals out there that don’t abuse Yield Spread Premium…you just need to know how to find them. By finding the right self-employed mortgage broker to originate your loan you’ll avoid garbage fees and commission based markup of your interest rate. You can learn more about finding the right mortgage broker for the job and avoiding all of the unnecessary crap thrown at you by dishonest mortgage companies by registering for my free mortgage video tutorial.

If you’re considering refinancing your mortgage there are a number of reasons for taking out a new home loan.

Some people choose to refinance because of a financial hardship, others want to borrow cash against the equity in their homes; however, the most common reason is to get a lower monthly payment.

Here are several tips to help you get that lower payment and take back control of your paycheck.

How to Get Lower Mortgage Payments

The method you choose to lower your mortgage payment depends on your situation and your financial goals. Here are four of the most common methods used to get a lower monthly payment:

I. Extend the term length of your new home loan.

The easiest way to lower your monthly payment is to take your current mortgage balance and stretch it out over a longer amount of time. Suppose for example that you purchased your $300,000 home at seven percent five years ago and want refinance the balance of $280,000. Your current monthly payment is $1,200; however, refinancing with a 6.5% interest rate over forty years would lower payment to $850…a savings of $350. Keep in mind that by extending the term length of your loan you will be paying more to the lender in the long run for your financing.

II. Choose an Adjustable Rate Mortgage with a lower mortgage rate.

A short term fix for many homeowners is to choose an adjustable rate mortgage. If you expect your income to increase in the near future or plan on selling your home within a few years a hybrid ARM could be a sure fit. Hybrid Adjustable Rate Mortgages have the advantage of a fixed rate period that lasts as long as five years before the lender starts adjusting your mortgage rate. Hybrid Adjustable Rate Mortgages are an excellent way to take advantage of lower adjustable rate loans while protecting yourself from economic uncertainty.

III. Consider Interest Only or Option Adjustable Rate Mortgage Loans

If you’re interested in the lowest possible payment amount option ARMs, while risky, provide the lowest possible minimum payment. The problem with this type of loan is that if you only make the minimum payment amount every month you’re not paying enough to cover all of the interest due that month. The unpaid interest is simply added to your loan balance which results in a mortgage that actually grows over time. This is a bad thing. If you want to limit your risk but need a lower payment than a traditional ARM, consider an interest only loan.

IV. Borrow Against Your Equity to Take Back Your Budget

Cashing out the equity in your home to pay off other bills could be the solution for a budget that is out of control. When you refinance your mortgage and take cash back to pay off other bills you get to deduct the interest paid on this debt from your taxes.

Getting the lowest possible payment when refinancing can only happen if you qualify for the lowest mortgage rate. The mortgage quotes you receive shopping on the Internet and by calling your mortgage broker all include commission-based markup. If you want the lowest possible payment you’ll need to qualify for a wholesale mortgage rate…you can learn more about refinancing wholesale without paying junk fees with our free mortgage video tutorial. Register today while this is still a free offer; you’ll get immediate access to the videos on your PC and free live support to answer any questions you have.