Mortgage Refinance Guide

If you are in the process of refinancing your home mortgage loan the Good Faith Estimate can be a source of confusion. While the Good Faith Estimate (GFE) can be a useful tool for evaluating a loan offer, keep in mind that it is just an estimate and treat it accordingly. Here are several tips to help you understand Good Faith Estimates when refinancing your home mortgage loan.

What is the Good Faith Estimate?

Mortgage lenders are required to give you the standardized form known as a Good Faith Estimate within 24 hours of receiving your application for a mortgage loan. Of course this isn’t the most helpful time to get your Good Faith Estimate when comparison shopping; most mortgage lenders will provide you a copy for the loan you are considering upon request.

Your Good Faith Estimate is an itemized list of fees associated with your loan. Pay close attention to your loan origination fees and Yield Spread Premium as this is where most people overpay when refinancing. If you’re not familiar with these terms don’t worry…you’ve come to the right place to learn how to save money when refinancing.

Loan Origination Fees

Non-bank originated mortgage loans are arranged by a third person, typically a mortgage company or broker. These people work for an origination fee which is paid by you at closing. A reasonable amount to pay for loan origination is one percent of your loan amount; however, it is not uncommon to find mortgage companies and brokers charging four percent or more for loan origination. Your goal when refinancing your mortgage should be to find a mortgage broker willing to work for a one percent origination fee without charging you Yield Spread Premium.

Yield Spread Premium

Most people have never heard of Yield Spread Premium. Simply put, this is a commission paid to the broker by the lender behind your loan. Yield Spread Premium is paid because the broker marks up your mortgage rate beyond what your lender approved you to earn a commission. Your mortgage broker earns a commission of 1% of your loan amount for every .25% they overcharge you. Yield Spread Premium can add hundreds of dollars to your month payment just to pay a bonus to the person arranging your loan.

The good news is that you can avoid this unnecessary markup of your mortgage interest rate and save yourself thousands of dollars in the process. You can learn more about avoiding Yield Spread Premium and other garbage fees when refinancing your mortgage by registering for my free video tutorial.

If you’re in the process of refinancing your home you can save yourself thousands of dollars by getting a wholesale mortgage rate. The problem for many homeowners is that that they don’t know how get wholesale rates; most mortgage brokers would simply laugh at you if you told them “give me a wholesale mortgage rate.” Here are several tips to help you negotiate with mortgage brokers and find the right person to arrange your home loan.

Not Every Mortgage Broker Will Negotiate

The problem with negotiating with a broker is that not all brokers are in a position where they can negotiate. If you’re speaking to a salesperson from a large brokerage house they will probably not have the authority to negotiate for the terms you’re looking for. The reason for this is that the owner of the brokerage will be splitting the commission with the salesperson meaning you’ll always pay more than you have to with a mortgage broker in this situation.

This is also true of mortgage brokers that employ their own salespeople. Suppose for instance, you’re charged a one percent origination fee for your home loan. Your broker pockets this fee and will most often pay the salesperson from the Yield Spread Premium on your loan. Loan offers that don’t have origination fees are making up the difference often by doubling the amount of Yield Spread Premium on your loan. If you want a wholesale mortgage rate and plan on keeping your home for a long time you’ll need to avoid Yield Spread Premium completely.

If you’re not already familiar with this retail markup of your mortgage rate for a commission here is an article about the basics of Yield Spread Premium.

Self Employed Mortgage Brokers Are Best

It’s always better to work with the owner of the company you are dealing with. A self-employed mortgage broker that has been working for ten years or longer is the perfect candidate for arranging your mortgage. Working out of their home? Even better. One reason why working with a self employed mortgage broker is better is that they simply don’t have the overhead expenses that come with posh offices and support staff. A self employed mortgage broker is more likely to negotiate with you and agree to your terms for the loan.

What To Ask For When Refinancing

If you plan on keeping your home for the duration you’ll want to pay a one percent origination fee without any Yield Spread Premium on the loan. Some mortgage brokers argue that paying the origination fee will only raise your closing costs; however, agreeing to a higher mortgage rate that includes Yield Premium will result in a mortgage payment that could be as much hundreds of dollars higher per month than it has to be.

You can learn more about finding the right mortgage broker to arrange your loan by registering for my free video tutorial. Register today and you’ll learn how to refinance with a wholesale mortgage rate without paying garbage fees to your lender or broker.

If you are considering refinancing your mortgage you might wonder what valid reasons are for taking out a new home loan. There are a number of different reasons people choose to refinance their mortgage loans; with mortgage rates at the lowest levels since 2004, now is the perfect time for you to get a new home loan. Here are several tips to help you decide if mortgage refinancing is right for you and to show you how to avoid paying too much for the new loan.

Why Refinance Your Mortgage?

The most common reason for refinancing is to secure a lower monthly payment. In order to lower your payment you first have to qualify for a lower mortgage rate…how much lower depends on your situation.

You may have heard of the so called “two percent rule” of mortgage refinancing; this rule says you should not refinance unless the new mortgage rate is two percent lower than your current rate.

This “two percent rule” is complete rubbish…you can save yourself a lot of money refinancing with a rate less than two percent…it just depends on how long it takes to recoup your expenses form refinancing. You can easily determine how long it will take to recoup your expenses if you know the new payment amount. Simply divide your total closing costs including any penalty you have to pay for early repayment by the difference between the new payment and the old payment amounts. This will tell you the number of months it will take you to recoup your expenses from refinancing your home loan and realize a savings.

Lower Payments Are Not The Only Reason

There are cases where it makes sense to refinance with a higher monthly payment. If your goal is to build equity in your home at a faster rate you could refinance with a shorter term length in addition to qualifying for a lower mortgage rate. While this would get you a higher payment you would be paying less to the lender in finance charges and would build equity in your home at a much faster rate.

Other reasons for refinancing to a higher monthly payment include borrowing against your home equity. Refinancing your home loan and taking cash back is generally cheaper than taking out a home equity loan or line of credit. Since you’re borrowing against the equity in your home you can use the cash for any reason and have the advantage of making one monthly payment instead of two with a home equity loan.

Watch Out For Garbage Fees

Once you’ve decided that mortgage refinancing makes sense you’ll need to be careful to avoid garbage fees and commission based markup of your mortgage rate. Taking out a mortgage is a lot like buying a used car…if you’re not careful it’s easy to overpay thousands of dollars for your new mortgage loan. You can learn more about your mortgage refinancing options including costly pitfalls to avoid by registering for our free mortgage video tutorial.

You might hear people talking about Par mortgage rates from time to time but what does Par mean? Par simply means a mortgage rate with no discount points or Yield Spread Premium attached. This is the rate you want when refinancing or taking out a new loan to purchase your home. Here are the basics you need to know about Par rates and how you can get one.

Discount Points And Yield Spread Premium

When retail mortgage rates are quoted you may see them based on a certain number of “points.” Points, also called “Discount Points” are a fee you would be required to pay in order to qualify for a specific mortgage rate. One “point” is the equivalent of one percent of your loan amount and paying this fee is typically something you want to avoid; especially if you are trying to refinance with a wholesale rate. Points are easy enough to recognize because the lender tells you about them upfront; however, no one talks about Yield Spread Premium.

Yield Spread Premium is the markup your mortgage broker adds to get a commission from your lender. Lenders pay this “broker rebate” for closing loans with above market interest rates. They do this because the lender makes the majority of their profit by selling loans to investors on the secondary market…loans with above market mortgage rates bring the most profit.

If you want wholesale mortgage rates when refinancing your home loan you’ll need to find a mortgage broker willing to work for you without marking up your mortgage interest rate. You’ll have to pay a reasonable origination fee for their services; however, there are honest mortgage brokers out there who are willing to do this for you. You can learn more about mortgage shopping for par rates while avoiding garbage fees by registering for our free video tutorial.

Are you considering taking out a new mortgage to refinance you existing loan and want the lowest possible mortgage rate? Did you know that wholesale mortgage are available to the average homeowner who knows how to get them and can save thousands of dollars? Here are several tips to show you how rates are quoted so that you can take advantage of wholesale mortgage rates.

Banks vs. Mortgage Brokers

There are basically two types of rate quotes out there today. There are mortgage rates quoted by banks that fund loans with their own money and rates quoted by mortgage brokers reselling loans from wholesale lenders. Both types of mortgage rates are considered “retail” mortgage rates because they include markup. Banks mark up their mortgage rates to make a profit when selling their loans to investors and mortgage brokers mark up their rate quotes to get a bonus from the lender for closing loans with above market mortgage rates.

Take out a mortgage from either one of these and you’ll pay too much just to give someone a profit. If retail mortgage rates are inflated to give someone a commission, how do you refinance your home loan without paying too much? The first thing you need to do when shopping for a mortgage is avoid your bank completely. Your bank will never negotiate with you over mortgage rates or fees because they don’t need to; banks aren’t even required by law to disclose their markup or profit margins on your loan thanks to a loophole in the Real Estate Settlement Procedures Act. With this in mind why would you give your business to someone that doesn’t have to play by the rules?

Understanding Yield Spread Premium

Now that you’ve ruled out banks for your next mortgage you need to understand how wholesale mortgage rates work. These rates are offered by wholesale lenders that do not deal with the public directly; you might think you can avoid the broker by contacting a wholesale lender yourself…the only problem is that every wholesale lender has a retail division that deals with the public. Only mortgage brokers have access to wholesale mortgage rates.

Now that you know that mortgage brokers are the only way to get wholesale mortgage rates, how can you find one that won’t rip you off? While it’s true that mortgage brokers have earned a reputation for being sleazy sales types there are honest people working in the industry…you just have to find them and learn how brokers make their money.

How Mortgage Brokers Are Paid

Brokers receive compensation from two sources in a typical mortgage transaction. When taking out a mortgage you are usually required to pay an origination fee for the broker’s services. Many brokers charge a “loan processing fee” on top of their origination fee; however, this processing fee is a garbage fee you should not agree to pay. What is a reasonable fee for loan origination? One point, or one percent of your loan amount is reasonable and fair compensation for your mortgage brokers services.

The second way that mortgage brokers receive compensation is from a commission paid by the lender. Commissions are usually paid for selling something…so you might be surprised what exactly your broker sells to earn this commission…it’s a higher mortgage rate. That’s right…your mortgage broker receives a commission from the lender for closing loans with above market mortgage rates. This commission is called Yield Spread Premium and according to the Secretary of Housing and Urban Development is responsible for homeowners in the United Sates overpaying billions of dollars for their home loans every year.

You Can Avoid Yield Spread Premium

Understanding that the rate quotes you receive include commission based markup is the first step to avoiding it. Your mortgage broker receives one percent of your loan amount for every quarter percent that you agree to overpay…tell your potential mortgage brokers that you understand how Yield Spread Premium works and you’ll be in a much better place to negotiate for a wholesale mortgage rate.

You can get started by contacting local mortgage brokers in your telephone book and tell them that you will pay a reasonable fee for loan origination but will not accept a mortgage that includes lender paid compensation or Yield Spread Premium. When negotiating with mortgage brokers you may be more likely to be successful negotiating with mortgage brokers that are self employed; representatives at a large brokerage firm may not have the authority or willingness to negotiate over Yield Spread Premium.

You can learn more about mortgage rates and refinancing your home with a wholesale loan by registering for a free video tutorial. Register today while these videos are still a free offer and you’ll learn how to avoid the retail markup and garbage fees that you hear about in the news.