Mortgage brokers can be useful resources for refinancing your mortgage if you fully understand what you’re getting into in advance. Brokers are compensated by the origination fees you pay for your loan and often by marking up your mortgage interest rate for a kickback by the wholesale lender. This markup of your mortgage rate is called Yield Spread Premium and if you elect to refinance with a mortgage broker your number one priority needs to be avoiding this unnecessary markup.
Mortgage lenders reward mortgage brokers for marking up your mortgage interest rate by paying them one point (one point is 1% of your loan amount) for each .25% they convince you to pay above the mortgage rate you were qualified. Can you see how this markup has the potential to be abused? You’re already paying in excess of 1.5% of the loan amount to the broker in origination fees for the broker’s services.
Can you avoid paying Yield Spread Premium when working with a mortgage broker? You can if you’re upfront with the broker about the fees that you will pay. When shopping for a mortgage broker you need to tell them that you will pay a reasonable origination fee for their services but will not pay their markup of your mortgage interest rate. A reasonable origination fee is 1.5% of your loan amount. Tell the broker you will pay all necessary third party settlement charges but will not pay Yield Spread Premium. When you have a broker that agrees to your terms, and there are honest mortgage brokers out there, you will have taken the first step to avoiding the costly mistakes other homeowners make when refinancing their mortgages.
You can learn more about working with a mortgage broker without paying unnecessary mortgage interest or junk fees with a free mortgage tutorial.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
