Home Mortgage Refinancing Guide

If you are in the process of refinancing your mortgage, one of the fees you need to pay close attention to is the loan origination fee. The Loan Origination Fee is paid to your Mortgage Company or broker for their part in setting up your mortgage loan. The origination fee is more than adequate compensation for the work they do; however, mortgage companies and brokers have a way of lining their pockets at your expense.

How much is a Reasonable Loan Origination Fee?

When refinancing your mortgage you can reasonably expect to pay 1-1.5 points to the Mortgage Company or broker for the loan origination fees of a home you plan to occupy. If this is an investment property the loan origination fees will be higher, typically 2.-2.5 points. A “point” is one percent of your loan amount; if the origination fee on your Good Faith Estimate is higher than this, question your loan representative as to why the fee is higher.

Mortgage Processing Fees

The next fee you should check on your Good Faith Estimate is the loan processing fee. This amount is often paid to a third party processing company; whoever receives this fee will be listed on the Good Faith Estimate. The mortgage processing fee should not be more than $400. Another way your mortgage company or broker overcharges you is by marking up your mortgage rate from the wholesale lender.

Mortgage companies do this because of an incentive from the wholesale lender for overcharging you. For every quarter point the mortgage company overcharges you they receive a bonus of one point from the wholesale lender. This markup of your interest rate by the wholesale lender is called Yield Spread Premium and results in overpaying thousands of dollars in unnecessary mortgage interest every year.