Home Mortgage Refinancing Guide

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.

Most homeowners know very little about how mortgage brokers are compensated for their work.

They assume that the origination fee listed on their Good Faith Estimate is the broker’s commission for the home loan; however, what you don’t know about mortgage broker fees could cost you a lot of money.

Here are several tips and questions to ask potential brokers to help you find the right professional to refinance your home loan.

The mortgage industry in the United States has a dirty little secret known as Yield Spread Premium. Mortgage brokers are very good at explaining away this fee as “lender paid” compensation; in other words it’s not coming out of your pocket so don’t worry about it. The problem with Yield Spread Premium, which is a percentage of your loan amount created when the broker locks and closes your home loan with an above market interest rate, is that it really is costing you money…thousands of dollars in unnecessary finance charges every year that you’ll pay as long as you keep that loan

Yield Spread Premium is a Lie

Your mortgage broker pockets a commission from the lender for marking up your mortgage interest rate. Sure this is listed on the HUD-1 statement as a “broker rebate” but if your broker doesn’t tell you they’ve marked up your interest rate for cash it’s still a lie of omission. Your mortgage broker receives one percent of your loan amount for every quarter percent they overcharge you. This “rebate” is paid in addition to any origination fees or mortgage broker fees you’re already paying.

Mortgage Refinancing Done Right

Another problem faced by the majority of homeowners refinancing their mortgages is that they don’t know what a good deal looks like. The ideal transaction between a homeowner and a mortgage broker is a loan with zero Yield Spread Premium, no garbage fees, and a one percent origination fee. Think that this sounds too good to be true? It’s not if you know how to find the right mortgage broker to originate your loan.

Questions to Ask Your Mortgage Broker

Before you agree to anything with a mortgage broker there are several pointed questions you need to be asking:

Honest mortgage brokers willing to work for a one point origination fee do exist and finding a broker like this will save you thousands of dollars and countless headaches when refinancing your home. You can learn more about getting a wholesale mortgage rate while avoiding lender junk fees by registering for my free mortgage video tutorial.

If you are considering using a mortgage broker to refinance your home mortgage loan, there are several things you need to know before choosing a broker. Mortgage brokers are very similar to used car salesmen as the more you pay the higher their commission will be. Mortgage lenders actually pay an incentive to brokers for overcharging you. This incentive is called Yield Spread Premium and avoiding this markup needs to be your number one priority when refinancing. Here are the basics you need to know when choosing the right mortgage broker to refinance your home.

Yield Spread Premium: What You Need to Know

Mortgage brokers are compensated for the work by charging you an “origination fee” for the loan and by a premium paid by the wholesale lender. This premium is paid when the broker marks up the interest rate that your lender approved you. The “Yield Spread Premium” is the difference between the wholesale rate you were approved and the interest rate your broker tells you that you qualified. This markup is what makes mortgage rates retail; fortunately, homeowners who understand how this works can avoid paying it and qualify for wholesale mortgage rates.

Many mortgage brokers tell you not to worry about the premium because the fee is being paid by the lender. The problem with this reasoning is not the fact that the lender is paying the fee, but why they’re paying it in the first place. This fee is a reward to the broker because you’ve agreed to refinance with an above market mortgage rate. Your broker receives a commission of one percent of your loan amount for every .25% you agree to overpay. Most brokers omit their markup from your Good Faith Estimate so you’ll have to pay close attention to your HUD-1 statement. Look for this unnecessary markup to be disclosed around line 810 of the HUD-1.

How to Find a Broker Without Paying Yield Spread Premium

This commission based markup of your mortgage interest rate can be avoided. If you’re up-front with potential mortgage brokers and let them know that you understand how Yield Spread Premium works you can refinance your mortgage with a wholesale mortgage rate. When comparison shopping for a broker you might have the best luck working with one that is self-employed. Large brokerage house may not give their mortgage brokers the authority to make you a deal that doesn’t include Yield Spread Premium. Whenever possible try and deal with the owner of the business and let them know up front that you will not accept any mortgage that includes lender paid compensation for a higher interest rate.

You can learn more about your mortgage refinancing options, including expensive pitfalls to avoid by registering for a free video toolkit.

If you are in the process of taking out a new mortgage to purchase your home or refinance your existing mortgage, the fees you pay can make the difference between getting a great mortgage loan and paying too much. The fees on your Good Faith Estimate are often cryptic and many brokers leave the most important loan processing fees out completely. Here are several tips to help you make sense of mortgage fees and avoid paying too much for your next mortgage loan.

Your Good Faith Estimate is Just an Estimate

The most important thing to understand about the Good Faith Estimate is that it is just an estimate. Mortgage brokers frequently lowball loan processing fees to make their loan offers appear more attractive. Brokers also frequently leave their markup of your mortgage rate off the Good Faith Estimate completely. If the Good Faith Estimate is unreliable, what can you use to get a good idea of what your loan processing fees are?

The good news is that the HUD-1 will accurately reflect all of your loan processing fees and markup. The problem is that you will not typically receive this document until 24 hours prior to closing. Once you have reconciled the loan processing fees and markup on the Good Faith Estimate with your HUD-1 statement you will need to have a heart-to-heart discussion with your mortgage broker about any discrepancies you find.

Beware Mortgage Junk Fees

There are a number of junk fees on your Good Faith Estimate and HUD-1 statement that you need to be aware of. One of the most notorious junk fees is the so called “rate lock fee.” Mortgage brokers charge this fee for “locking in” your mortgage interest rate. What you need to know about rate lock fees is that lenders do not charge your mortgage broker a fee for locking your rate. This fee is entirely invented by your broker to line their pockets at your expense and is complete garbage.

Other junk fees you need to keep an eye out for include broker courier fees, application fees, and loan processing fees. Many mortgage brokers try and justify their loan processing fees by telling you that they use a “professional loan processor” to prepare your file and charge you as much as $500 for the service. What do you get for your $500? Your “professional loan processor” will print out the required documents and mail the application and disclosure statements to you for signature, and then FedEx the entire folder to the underwriter for loan approval. Total “processor” time necessary, one hour maybe two…Is this paperwork shuffling worth a $500 fee? I don’t think so…do you?

Watch Out For Yield Spread Premium

If you’re not already familiar with Yield Spread Premium it is the markup your mortgage broker adds to your mortgage interest rate to get a commission from the lender. Many brokers leave this markup of your Good Faith Estimate altogether and then cleverly disguise it on your HUD-1 statement. When questioned about Yield Spread Premium many mortgage brokers get defensive, even angry. Your mortgage broker might tell you that because the fee is not coming out of your pocket you shouldn’t worry about it.

The problem with Yield Spread Premium is not the fact the lender is paying the broker a fee, but the reason the lender is paying your broker a fee. Your broker receives this fee because you’ve agreed to pay an above market mortgage rate and for no other reason. In fact, Yield Spread Premium is the number one reason people overpay for their mortgage loans and according to the HUD Secretary is responsible for overcharging homeowners in the United States nearly sixteen billion dollars each year.

Avoiding Yield Spread Premium needs to be your number one priority when applying for a mortgage loan. If you’d like to receive more advice about taking out a mortgage without paying too much, register for the free mortgage refinancing blueprint available from this website.

Mortgage loan processing is a confusing aspect of refinancing for many homeowners. Many mortgage brokers charge a fee as high as $500 or more; however, isn’t this just a junk fee?

Many mortgages brokers justify their fee by saying they use a “professional loan processor” to process their files. First of all, what the heck is a “professional loan processor” and if this person gets paid $500 an hour for their work, where can I sign up? Nonetheless, here and the pros and cons of the broker’s “professional loan processor” argument to help you decide if “processing fees” are legitimate expenses when refinancing your mortgage.

Mortgage Loan Processing

What happens when a mortgage broker “processes” your loan application? Once your mortgage broker has sold you on a loan offer they’ll set up a file in whatever origination software that broker is using. After they’ve priced out the loan including the potential markup of your interest rate they’ll turn the file over electronically to the “loan processor.”

The “mortgage processor” checks the file for errors (electronically of course…computers do most of the work). If everything checks out the processor prints the application documents and disclosures. The necessary documents for closing your new mortgage include:

Once the application and mortgage documents have been sent to you for signature, the loan processor begins checking the title and proof of insurance and verifies your income using w-2s or bank statements. After your file is complete the processor assembles the necessary documents for the lender you’ve chosen and transfers the file to the loan underwriter. These documents are typically sent via FedEx or other courier. Your mortgage application has not yet been approved.

At this point the loan processor’s job is done and your file is in the hands of the underwriter. How much time is spent preparing your documents? One hour…maybe two? Is printing out documents prepared by a computer worth a $500 processing fee? Shouldn’t your mortgage broker print out their own paperwork?

If a mortgage broker’s time is that valuable they could easily find cheerful college students at temp agency to do this work for $15 an hour…how can you possible justify a $500 processing fee by someone that has nothing to do with underwriting the loan? I’m sure loan processors are real people with kids to feed; however, for the work necessary to get your file to the underwriter there is no justification for a $500 processing fee.

What do you think? Is the application processing fee a valid expense?

Leave your thoughts and comments below…

As for me, I think not…tell your mortgage broker to take out the trash and refuse to pay junk fees when refinancing your home. You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free video tutorial. Get started today, there is no obligation and doing your homework could save you thousands of dollars. You can sign up for immediate access by clicking the DVD image at the top of this page.