Mortgage Refinance Guide

Mortgage rate locking can be a source of confusion for many homeowners. Lock at the wrong time and you could miss out on a good rate…fail to close before the lock expires and you could miss your rate all together. Locking your mortgage rate when refinancing is more important than you think; your rate lock confirmation provides you key information regarding your mortgage rate. Here are the basics you need to know about locking your mortgage rate when refinancing to avoid paying too much for your next mortgage loan.

Mortgage Rates Are Constantly Changing

Mortgage rates tend to fluctuate on a daily and sometimes hourly basis. If you miss locking your refinancing mortgage rate today, it will not be the same tomorrow. Your mortgage broker has to re-price your loan on a near daily basis. Before you can understand the importance of your mortgage rate lock confirmation you need to understand how your mortgage broker is paid for their work.

The origination and mortgage broker fees are pretty straight forward but often over-inflated. Yield Spread Premium on the other hand will be cleverly disguised in your loan documents if disclosed at all. In the simplest terms Yield Spread Premium is simply a percentage of your loan amount created by the broker when they lock and close your mortgage with above market rates. This is a commission paid by the lender when your mortgage broker overcharges you.

If you plan on staying in your home for the long term it makes sense to pay an origination fee and avoid Yield Spread Premium completely. If you agree to pay any amount of Yield Spread Premium on your loan you could overpay thousands of dollars every year that you keep the loan. The problem is most homeowners don’t know how to recognize Yield Spread Premium on their loan documents. This is where the rate lock confirmation comes in…this one piece of paper could save you thousands of dollars.

Ask For Your Rate Lock Confirmation

After you lock in your mortgage rate, make sure you ask the broker for the rate lock confirmation from the wholesale lender. Don’t accept any confirmation typed up on your mortgage broker’s letterhead, it has to come from the lender directly. The reason you don’t’ want this document from the broker is that it will have Yield Spread Premium clearly disclosed on the form…mortgage brokers that provide rate locks on their own letterhead do so to hide what they’ve done with your mortgage rate. You can learn more about refinancing your mortgage with a wholesale mortgage rate without paying too much by registering for my free video tutorial.

When the Federal Reserve lowers short term interest rates mortgage refinancing becomes a hot topic for many homeowners. If you are considering refinancing your mortgage but are concerned about paying too much there are several things you need to know about shopping for a new home loan. Here are several tips to help you refinance your home loan without paying garbage fees or unnecessary markup of your mortgage rate.

Banks vs. Mortgage Brokers

The first thing you need to know is that you should never take out a mortgage from a bank or broker bank. Banks are exempt from the Real Estate Settlement Procedures Act and are not required to disclose their profit margins or markup of your mortgage rate. If you refinance your home loan with a bank you’ll never get a wholesale mortgage rate or anything close to it. The same is true of broker banks.

What’s a broker bank? This is basically a mortgage company or broker operating as a bank. Many mortgage companies and brokers changed their businesses when the law changed in order to take advantage of the same loopholes as banks. The only way to recognize if your mortgage company or broker is acting as a broker bank is to ask if they close on the mortgage in the name of the company or the wholesale lender. If the answer you get is that they close in their own company’s name you are dealing broker bank and cannot refinance with wholesale rates.

Mortgage Broker Secrets

The biggest secret your mortgage broker is keeping from you is called Yield Spread Premium. This is the industry term for the commission your mortgage broker receives for marking up your mortgage interest rate. Brokers do this because lenders pay one percent of you loan amount for every .25 percent they overcharge you…something they do without telling you. There are ways to recognize this markup of your mortgage rate, and it is possible to avoid paying it when refinancing.

How to Recognize Yield Spread Premium

Your first opportunity to spot Yield Spread premium is on the Good Faith Estimate; however, many brokers intentionally omit it from this document. If you can get your hands on the rate lock confirmation from the lender, Yield Spread Premium is clearly disclosed; however, many brokers falsify rate lock confirmation to omit this markup. The last chance you’ll have to spot this markup is on the HUD-1 statement. If Yield Spread Premium is included with your loan it will be listed on lines 810 or 811 of this document. You may see it called a “broker rebate” or YSP paid to broker but this dollar amount is the kickback your broker receives for overcharging you.

Yield Spread Premium Can Be Avoided

Homeowners who learn to recognize Yield Spread Premium can negotiate with potential mortgage brokers to avoid paying it. You can learn more about refinancing your home loan without paying too much by registering for our free mortgage tutorial.

Flat Fee Mortgage Refinancing

Companies like Ditech offer great rates on their websites…until you read the fine print. I was on Ditech.com earlier today and they were offering a 5% fixed 30 year rate which is actually lower than today’s par or wholesale rate. How are they able to do this?

Check out the fine print and you’ll find out that you have to pay two points just to get this rate. So much for the low, flat fee…read the fine print on other “no fee” mortgage offers and you’ll discover that you’re trading fees for a higher mortgage rate.

While no cost mortgage refinancing sounds like a good offer, the mortgage rate you’re getting isn’t just a quarter point higher than you’d pay otherwise…it’s often a full point higher. There are dozens of no cost mortgage offers out there but most of them are only disguising their fees. If you are truly in need of no cost financing there are ways for honest mortgage brokers to cover your expenses with a higher mortgage rate; however, in most cases this is just a marketing gimmick to sell you an overpriced loan.

Yield Spread Premium Can Be Used For Good…

There are honest mortgage brokers that will structure loans with a higher than market mortgage rate and use the broker rebate to pay closing costs. Many mortgage brokers pocket this rebate after marking up your rate without telling you; this abuse of is so bad that the Secretary of Housing and Urban Development acknowledged that Yield Spread Premium is responsible for homeowners overpaying nearly sixteen billion dollars a year.

The way Yield Spread Premium works is that your broker receives a rebate of 1% of your loan amount for every .25% you pay above the market or par mortgage rate. If you don’t have the money to pay your closing costs your broker can simply use the rebate to cover your expenses. Remember that you’re agreeing to pay a higher mortgage rate in exchange for your closing costs…you’ll have a higher mortgage payment and have to spend more on finance charges for the duration of your loan.

Refinancing your home with a no cost mortgage could result in a monthly payment that is several hundred dollars higher than you’d have if you paid the closing costs yourself. This is also true if you unknowingly agree to a mortgage that includes Yield Spread Premium, a problem that happens to the majority of homeowners in the United States. You can learn more about your mortgage refinancing options, including expensive pitfalls to avoid by registering for our free video tutorial.

Every time you turn on the television these days it seems like the news is bad. Today the story was “World Markets Plummet” like a newspaper headline from a comic book. While today’s news may be filled with stories of higher unemployment and a faltering economy, there is good news for homeowners who are looking to refinance their mortgages. Mortgage rates have been falling and remain at very low levels. Savvy homeowners who understand wholesale rates can refinance with mortgage rates as low as 5.25%.

The mortgage industry is currently shouldering the blame for most of our current economic problems; however, these lower mortgage interest rates could not have come at a better time. Lower mortgage rates cause an increase in buyer demand and allow struggling homeowners the opportunity to refinance with lower payments. Whether or not lower interest rates will help prevent a recession is yet to be seen; however, there is a real opportunity for homeowners looking to refinance their mortgages.

Trends in Mortgage Rates

The Federal Reserve is expected to continue lowering the discount rate in an attempt to stem inflation and stimulate our economy in the hope of preventing a recession. The Federal Reserve started lowering interest rates in August of 2007; however, there has been little improvement in the economy thus far. While the Federal Reserve does not control mortgage rates, these rates are heavily influenced by the Federal Reserve and the economy. When the Federal Reserve started lowering short-term interest rates in August of 2007 mortgage rates reacted accordingly and have been declining ever since. This trend is welcome news as mortgage rates had been as high as 7% for many homeowners prior to August of 2007.

Will Mortgage Rates Bottom Out?

If you’re on the fence about refinancing your mortgage you might think that by watching rates you can get a better deal when mortgage rates drop further. Heck, rumor has it the Fed will keep lowering interest rates to simulate our dismal economy. Just keep in mind that what the Fed does with short term interest rates doesn’t mean mortgage rates will follow. Mortgage Rates are a market rate based on risk and reward; there is no reason for mortgage rates to be artificially low just to stimulate economic growth. If you gamble now and wait you could find mortgage rates back over 6%…mortgage rates are next to impossible to predict and anyone that claims they can is trying to sell you something.

Basically if you have seen mortgage rates drop enough to cover your closing costs and come out ahead after refinancing, now is the time to get a new home loan. You can learn more about refinancing your mortgage and protecting yourself from the economy and greedy mortgage brokers by registering for a free video tutorial. Register now while this is still a free offer; the videos will show you how to refinance with a wholesale mortgage rate without paying lender junk fees.

If you are in the process of refinancing your mortgage you might encounter POC charges. POC stands for “Paid Outside of Closing” and is a fee paid to your mortgage broker. Why does your broker receive this money and should you be concerned about how it affects your mortgage rate? Here are several tips to help you understand POC charges and avoid being taken advantage of when refinancing your mortgage loan.

What Are Paid Outside of Closing Fees?

This charge appears on your HUD-1 statement on line 810-811. It is frequently called a mortgage broker rebate but you will also see it called Yield Spread Premium or YSP paid to broker. This fee is a commission paid by the lender for closing your loan with an above market mortgage rate. That’s right; your lender rewards the broker for overcharging you.

P.O.C. Charges = Yield Spread Premium

Yield Spread Premium is the technical term for the incentive paid to your broker for overcharging you. Your broker knows the mortgage rate you qualify based on your financial details; (it actually takes sixteen pieces of financial information form you to accurately quote a mortgage rate) however, your broker marks up the rate based on what they think you’ll pay. Imagine a used car salesman pricing a car based on how naive they think the buyer is…mortgage brokers work in much the same.

Your mortgage broker marks up your rate because the lender pays a bonus of one percent of your loan amount for every quarter percent they overcharge you. This kickback from your lender is the Yield Spread Premium and will often double or even triple your mortgage broker’s compensation for originating your loan, at your expense of course.

How Can You Avoid P.O.C. Mortgage Charges?

Fortunately homeowners who do their homework can avoid POC charges and refinance their home loans with wholesale mortgage rates while avoiding unnecessary garbage fees. Refinancing with a wholesale rate can save you thousands of dollars and RefiAdvisor’s free DVD will show you how to do just that. Register for your free refinancing DVD today, the videos are yours with no obligation.