Home Mortgage Refinancing Guide

If you’re in the market to refinance your home mortgage loan and search for 30 year mortgage rate information on the internet, you’re bound to find a lot of confusing and conflicting information. How do you sort through the obvious crap and find honest rate information that does not include needles sales markup like the bogus mortgage rates you find on bankrate.com? Here are several tips to help you separate the wheat from the chaff when it comes to hunting for the lowest 30 year mortgage rates when refinancing your home loan.

Where Do Mortgage Rates Come From?

The first thing you should know about mortgage rates is that they come in two flavors. There are the retail mortgage rates quoted to 98% of homeowners that don’t know any better and the wholesale rates offered to brokers by big mortgage companies like Countrywide. You might think you can bypass the broker and their markup by going to a wholesale lender directly; however, every lender out there has a wholesale division and a retail division. Contact lenders directly and you’ll always be dealing with their retail division and the same unnecessary markup of your mortgage rate that you’re trying to avoid.

How to Make Sense of 30 Year Mortgage Rates

Before diving into 30 year mortgage rate quotes there is some terminology you need to be familiar with. The first term I’ll cover is the discount point. Most people know about discount points…a fee you’ll pay to buy down your mortgage rate. What you might not know is that genuine discount points go directly to the wholesale lender…unlike the origination points people frequently overpay to the person arranging their loans. If you ever come across a “discount point” that is paid to the broker and not the lender this is a bogus charge that you should never agree to pay. Your broker quoted you a much higher rate then you qualified and pocketed your discount points.

Banks do the same thing…you might think your bank or credit union is getting you a good deal. What you probably don’t know is that banks are exempt from the Real Estate Settlement Procedures Act and never have to disclose how much of your rate is marked up to boost their profit margins.

The next term I need to cover is the so called “par mortgage rate.” What is a par mortgage rate? This is simply the 30 year rate that doesn’t require you to pay any discount points to get it and does not create any money for the broker. By not creating any money for the broker this means it has not been marked up for Yield Spread Premium. You can’t always get par rates when refinancing your home loan but you can come pretty close if you know where to look.

Mortgage brokers are the only way to get genuine par rates because they alone have access to the rates offered by wholesale lenders. The trick is to find a mortgage broker willing to give you access to wholesale rates without marking them up for a commission. Remember that bank mortgage rates always have markup built into them and will typically be half a point (or more) higher than rates offered by wholesale lenders. This is why you should never take out a mortgage loan from your bank or credit union.

The last term I’ll cover today is Yield Spread Premium. This is the commission created for the broker when you lock and close at a higher than par mortgage rate. You may be required to pay discount points to the lender to lower your rate; however, when it comes to creating cash for your brokers “bonus” it’s paid because you’re agreeing to a higher 30 year mortgage rate than you need to. Avoiding Yield Spread Premium needs to be your priority when refinancing your home loan.

Here are several examples how 30 year mortgage rates are quoted on rate sheets from a mortgage broker and a bank so that you understand how the broker and the lender profit from your loan

When your mortgage rate is quoted higher than par a cash bonus is created for the broker. Rate sheets usually show this cash with parenthesis; however, your rate sheet might show this with a minus sign. When your 30 year mortgage rate is quoted below par, discount points are required to secure this rate for your loan.

One thing to note here is that Yield Spread Premium only applies to mortgage brokers. When the markup is done by your bank this is pure profit and goes by the name Service Release Premium. As you can see in the previous example the so called “par rate” for the bank is .5% higher than the one offered by a broker. This is why you’ll never get a wholesale rate from your bank or credit union.

How do you find a mortgage broker willing to refinance your mortgage with a par 30 year mortgage rate without charging you garbage fees? Check out my free video tutorial series on this site and you’ll discover how to do this with an easy to follow step-by-step video guide.

It is becoming increasingly more difficult to get approved for a mortgage loan even with good credit. Mortgage lenders have been tightening standards for approval due to the credit crunch of late…and the end of the crisis is not yet in sight. Here are several tips to help make sure you qualify if you’re in the market to refinance your home mortgage loan in today’s topsy-turvy mortgage market.

What Mortgage Lenders Consider

Mortgages lenders look at a number of factors to not only approve your loan but assign you a mortgage rate. The top aspects lenders look at are your past credit history and the amount of cash you have; however, the single most important factor is your credit worthiness. If your credit score is below 700 right now your only option could be one of the FHA programs. While FHA loans are great the downside for you is that you will be required to purchase Private Mortgage Insurance (PMI). If you’re not familiar with PMI, this insurance protects the lender and the government from losses if you default on the loan.

The amount you’ll pay for PMI premiums depends on your credit history and can add hundreds of dollars to your monthly payment. While this is certainly a downside of Private Mortgage Insurance, if paying the premiums allows you to keep your home it’s certainly worthwhile.

How to Improve Your Credit Rating

To build a strong credit score you can start by paying down the balances of your credit cards so that you have not used more than half of your available credit. Suppose for example that you have a $5,000 limit on your cards…it is best not to exceed $2,500 in available credit. If you have used more than 50% of your available credit shifting the balances to other cards with less than half of the available credit used could improve your credit rating.

Pay More Than The Minimum Payment

Making the minimum payment every month will not help your financial situation. Set your own payment at least 25% higher than what you are due each month. This will not only improve your credit score but help pay down your balances as paying the card minimum will never get you anywhere. Don’t pay off your balances entirely…you want to show that you can use credit responsibly.

You can learn more about qualifying for a better mortgage and improving your credit score by registering for my free video tutorial.

When it comes to getting your home loan, nearly everyone wants to get the lowest mortgage rate possible. The question is how to do this…the answer doesn’t have to be as confusing as it might seem.

The first step to getting the best mortgage rates possible is for you to understand how mortgage rates are determined and where you stand based on your credit history and credit score.

If you currently have a mortgage loan, have you been hearing rates other people qualified for or have looked in the newspaper and seen low rates that make yours look terrible? Are you wondering how some people can secure a lower rate? Perhaps you are looking to get a mortgage and you want to have the lowest rate possible but you don’t know how to do it.

Your first step is to learn all that you can about mortgage rates and how the rate is determined. One of the most important factors in your mortgage rate is your credit rating. Most loan companies and banks will use your FICO score (FICO is short for the Fair Isaac Corporation) to determine what rates you will be charged and if you will even be approved for the loan.

However, this doesn’t mean that you have to have perfect credit to get a good mortgage rate. The truth of the matter is the better your FICO score, the better your chance of a good mortgage rate but there are other ways you can try to lower your rates even if you have less than perfect credit.

First, it is essential you pay any and all of your existing bills on time and as soon as possible. Avoiding delayed payments will help add points to your credit score. It can also be helpful to pay more than the minimum amount on long term balances. Paying over the amount due shows that you want to pay off your debts and also helps improve your score over time. You should also avoid applying for new credit which can lower your score with each new credit check. These simple strategies combined can help you get the lowest mortgage rates possible for you.

Locking in your mortgage rate can be a source of confusion and frustration for many homeowners. When and how do you lock in your mortgage rate? How do you know that your mortgage broker really locked in your rate? Mortgage rates change on a daily even hourly basis; if you miss the opportunity to lock you could lose that low mortgage rate your broker promised you. Here are several tips to help you understand mortgage rate locks and what they mean for your home loan and your bottom line when refinancing.

What Does Locking Your Rate Mean?

When you choose to lock your rate, a process you must initiate yourself, your broker “locks” your mortgage rate with the wholesale lender. The idea is to hold that rate long enough for you to close on the loan. Your broker sets the lock on your behalf with the wholesale lender…more importantly the lock determines the amount of Yield Spread Premium on your new home loan.

What is Yield Spread Premium?

Yield Spread Premium is a percentage of your loan amount created when the broker locks you with an above market mortgage rate. Your broker knows the wholesale mortgage rate that your lender approved you; however, they mark up this interest rate to get a commission from the lender. This commission is called Yield Spread Premium and if you want the best possible mortgage for the long term you need to avoid this commission based markup.

If you plan on living in your home for the long term does it make sense to be constantly refinancing your mortgage loan? Mortgage rates are currently and historically low levels…You’ll probably never see rates below four percent that aren’t teasers. With this in mind doesn’t it make sense to lock in a great rate now and keep it for the long haul? If this is what you’re trying to accomplish you’ll want to lock in a wholesale mortgage rate. Before you can get a wholesale rate you’ll need to understand how mortgage brokers are compensated for originating you loan.

How Are Mortgage Brokers Paid?

There are several ways your mortgage broker gets paid (often overpaid) for their work on your home loan.

Many brokers tell you that they’re not charging you origination fees because of Yield Spread Premium. Does it make sense to take a higher mortgage rate instead of paying a one percent origination fee when you plan on keeping your home for the long term? Absolutely not…If you plan on living in your home for the long term you want a wholesale rate and you only want to pay a once percent origination fee.

How Do You Lock Your Mortgage Rate?

Before you decide to lock in your mortgage rate you need to be sure that you’re working with the right mortgage broker. Talk to your broker about the rate you qualify based on your financial details. Did you know it takes sixteen pieces of your financial details to accurately quote a mortgage rate? If your broker has not asked for detailed financial information before quoting you a rate you can be certain that they have no intention of honoring that rate.

Talk to your broker about their compensation. This includes the origination fee, broker’s fee, and any Yield Spread Premium they get from marking up your mortgage rate.

Remember that a reasonable amount to pay for loan origination including origination points and fees should not be more than one percent of your loan amount. Ask your broker for an updated Good Faith Estimate on a daily bases; remember that mortgage rates are always changing.

Before you make the decision to lock your mortgage rate make sure you have an updated Good Faith Estimate from the same day.

Finally, after you’ve instructed your mortgage broker to lock make sure they email you the rate lock confirmation from the wholesale lender. This confirmation will show you the rate, points, and any Yield Spread Premium associated with your loan. You should have this confirmation within one hour of locking…if you don’t get it contact your broker immediately. Make sure that you get the rate lock from the wholesale lender. Don’t accept anything typed up by your mortgage broker on their own letter head as this is not a guarantee of anything and you want to see if there is any Yield Spread Premium included in your lock.

You can learn more about refinancing your mortgage with a wholesale rate while only paying a one percent origination fee by registering for my free mortgage refinancing videos.

With all the talk of interest rate cuts refinancing has become a hot topic for many homeowners. Here are the answers to several common questions regarding the current rate cuts and deciding if taking out a new mortgage is right for your situation.

When Does It Make Sense to Refinance a Mortgage?

Question: Is it true that you should not refinance unless your new mortgage rate is two percent lower than your existing rate?

Question: When should I apply to refinance my mortgage? Do the fees and hassles of refinancing outweigh the financial benefits?

Question: I am thinking about selling my house but could really use the lower rate now. If I refinance now and then decide to sell my home will I be hurting my chances of qualifying for another loan?

Answers:

Forget those rules that say you should never refinance unless your new mortgage rate is “this” much lower than your old rate; it’s best to decide if mortgage refinancing makes sense for you by evaluating the loan on a cost vs. savings basis. You can do this by calculating your break even point by dividing all of your fees and closing costs by the monthly savings from your new loan. Suppose for example that your new home loan has a payment $200 less than your old mortgage. If it cost you $3,500 to take out the new loan divide $3,500 by $200 and you’ll see that your break even point comes after 18 months. This is when you being to realize a savings from the new, lower mortgage payment.

If you plan on keeping your home long enough to reach this break even point and realize a savings, refinancing probably makes sense in your situation and will save you money. If you plan on selling before your break even point you could be losing money by refinancing. How can you evaluate your potential savings from refinancing? You’ll need to shop for rate quotes; however, the rate quotes you receive online or from a mortgage broker include commission based markup. If you want the absolute lowest mortgage rate possible you’ll need to get a wholesale rate. (more on wholesale rates later)

Which Term Length?

If you refinance with a 30 year mortgage you’ll be starting your loan amortization from scratch. What is amortization? It simply describes the process of repaying a mortgage loan over time. Mortgages are front loaded with interest so in the early years the majority of your payment is applied to interest and you build equity in your home at a very slow rate. This could be considered a disadvantage to refinancing, especially if you tap into your equity in the process. Another option is to choose a shorter term like 15 years. Your payments will be higher but you’ll build equity in your home at a faster rate and pay less to the lender in finance charges.

Refinancing now won’t hurt your chances of qualifying for another mortgage several months or a year from now if you sell your home. You just won’t be able to recoup all of the expenses you pay when taking out the new mortgage. Also, make sure your existing loan does not include a prepayment penalty, or if it does that you include this fee in your cost vs. savings analysis.

Is it too early to refinance my mortgage?

If you just purchased your home within the last year and have an interest rate 6 percent or higher, is refinancing worth it? There are no rules saying that you have to wait a certain amount of time before refinancing; you only need to calculate your break even point and make sure that you factor in the prepayment penalty if you have one.

What About Wholesale Mortgage Rates?

The mortgage industry has a dirty little secret that you need to be aware of. All rate quotes you receive online or from your broker include commission based markup. The problem with this markup is that you’re already paying the broker an origination fee for their services; in addition to this fee the broker marks up your mortgage rate for a commission without fully disclosing what they’re doing. The commission your broker receives for marking up your mortgage rate is called Yield Spread Premium and according to the Secretary of Housing and Urban development is the reason American homeowners will overpay nearly sixteen billion dollars for their home loans this year.

The good news for you today is that you can avoid Yield Spread Premium and refinance your home with a wholesale mortgage rate. Register for our free video tutorial and you’ll learn how to recognize Yield Spread Premium, negotiate to avoid paying it, and avoid lender junk fees when refinancing. Sign up today and get in while these videos are still a free offer.