That’s right, your mortgage broker knows the wholesale interest rate that your lender approved you but keeps this information from you. The broker marks up your mortgage rate much like a car dealer selling used cars to people that don’t understand blue book values. The less you know, the more you’ll pay. The wholesale lender rewards your mortgage broker with a bonus of one percent of your loan amount for every quarter percent you agree to overpay. In Jackie’s example the lender approved her for a mortgage rate of 7.0%; her broker marked it up for the additional commission from the lender. This unnecessary markup of your mortgage interest rate has a name; it’s called Yield Spread Premium. According to the Secretary of Housing and Urban Development, Yield Spread Premium costs homeowners in the United States nearly six billion dollars every year. That’s right, six billion dollars.
Jackie’s mortgage broker collected 3.0% of her loan amount, plus the 1.5% he overcharged her for the origination fee. For a couple hours work the broker walked away with $15,975 at Jackie’s expense. Ever wondered how your mortgage broker makes his Hummer payment? Now you know.
Let’s recap: Jackie’s first mistake was neglecting to shop around and compare fees from a variety of brokers and lenders. If she had done this she would have seen that 1.5% for the origination was too high. Her second mistake was neglecting to do her homework. If Jackie had invested the time she could have learned about Yield Spread Premium and refinanced with a wholesale mortgage rate. Finally, Jackie’s stuck with a hefty prepayment penalty. The next time she decides to refinance her mortgage she’ll be facing a large fee to get out of her existing loan. If Jackie had carefully read the paperwork and questioned her broker about this prepayment penalty and the markup of her interest rate she wouldn’t have the lousy mortgage she’s now stuck with.
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Mortgage Refinancing
Tagged Under: How-Not-to-Refinance-Your-Mortgage, Mortgage-Refinancing, Mortgage-Refinancing-Advice, mortgage-refinancing-mistakes
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