Home Mortgage Refinancing Guide

Most people think that to find the lowest mortgage rates you have to find the best mortgage lender and this just simply isn’t the case. The person arranging your loan has more to do with your mortgage rate than you think…choose the wrong person for the job and you’ll overpay thousands of dollars every year you keep the loan.

What I’m talking about here has nothing to do with your credit or qualifying ratios; it’s all about the markup of your mortgage rate for a commission. Here are the basics you need to know before refinancing your home loan to get the best mortgage rates.

Understanding Mortgage Rate Quotes

Most of the rate quotes you see online are simply garbage. In order to accurately quote you a mortgage rate your mortgage broker needs sixteen pieces of your personal financial information. If you get quotes without providing the intimate details of your finances the person you’re dealing with has no intention of honoring that rate. Assuming that you have provided this information the quotes you receive are not the mortgage rates you qualify, they have been marked up to get a commission from the lender behind your loan.

What is Commission Based Markup?

Most brokers charge an origination fee to you for their services. This fee is disclosed on your Good Faith Estimate and HUD-1 settlement statement. What your broker isn’t telling you is that they get paid by the lender also for marking up your mortgage rate. This markup is what makes mortgage loans “retail” products. Just like buying a car where the dealership markups up your car for profit the mortgage broker marks up your loan to make a buck. This is considered dishonest by many because you’re already paying an origination fee for their work and this markup can cost you thousands of dollars every year.

Yield Spread Premium

The technical term for the fee paid by the lender is Yield Spread Premium. Basically the way it works is the lender pays your broker .25 percent of your home loan for every quarter percent they overcharge you. You might think that a quarter percent isn’t much but in a moment I’ll show you what this markup does to your mortgage payments. Yield Spread Premium is rarely disclosed on the Good Faith Estimate and can be hard to recognize on your HUD-1 statement. The best way to avoid this unnecessary markup is to be upfront with your mortgage broker about your intentions for the loan.

Here is an example to illustrate the markup of your mortgage rate by the broker. Suppose you are refinancing your home for $250,000 and the broker quotes you a rate of 6.75 percent with an origination fee of 1.5%. You’ll pay the broker $3,750 at closing for this fee. Assuming that you take out a 30 year home loan with a fixed mortgage rate your monthly payments for this loan will be $1,622. What your mortgage broker isn’t telling you is that you actually qualified for a 6% mortgage rate and they’ve marked it up for the Yield Spread Premium. If you had actually gotten the mortgage rate you deserve in this example your monthly payment would be $1,498. This is a difference of $1,488 every year you keep this loan…money you’ll pay for no good reason!

Refinance With Wholesale Rates

Homeowners who learn to recognize Yield Spread Premium can find mortgage brokers willing to work without the markup. It is possible to refinance your home paying only a one percent origination fee saving thousands of dollars every year. You can learn more about doing this yourself by registering for my free home loan refinancing video tutorial.

You can’t turn on the television these days without hearing about how low mortgage rates are. Following a series of interest rate cuts by the Federal Reserve, mortgage rates are at their lowest levels since 2004… but how do you know if a new mortgage is right for your situation? Taking out a new mortgage loan costs money and here are several tips to help you decide if refinancing is right for your situation.

Determine Your Break Even Point

You may have heard an old wives tale known as the “Two Percent Rule” of mortgage refinancing. This “rule” states that you should not refinance your mortgage unless the new mortgage rate is exactly two percent lower than what you’re already paying. This rule is complete rubbish! The decision whether or not it makes sense to refinance is actually quite simple in most cases and can be answered with a single question.

“How Long Before I Save Money?”

The answer to this question is also fairly simple to calculate. Take the amount of money you save with a lower mortgage payment and divide your closing costs and fees by this savings. This will tell you how many months it will take to realize a savings from the new home loan; if this length of time is acceptable to you than it probably makes sense to refinance in your situation.

Here’s an example to illustrate the decision to refinance your mortgage. Suppose for instance taking out a new home loan lowers your mortgage from $1100 to $900. This is monthly savings of $200 and your closing costs, fees, and points total $4,000. Divide $4,000 by the $200 you’re saving and it will take you 20 months to recoup the expense of refinancing your mortgage.

Beware Markup & Junk Fees

Once you’ve decided to go forward with a new mortgage it’s important to do your homework and learn how mortgage rates are quoted if you want the lowest possible interest rate. Homeowners who do this are able to refinance with wholesale mortgage rates without paying unnecessary fees. You can learn more about wholesale mortgage rates by registering for a free video tutorial; register today while these videos are still a free offer.

Mortgage Rates fell again today, down to 5.0% from yesterday’s 5.25%

…this is the lowest that mortgages rates have been since 2004.

Can you find a rate like this shopping online or from your bank? The short answer is no, never. Rate quotes you receive online all have retail markup and banks never quote wholesale rates. The only way to take advantage of this 5.0% mortgage rate is to find a broker willing to quote you a rate that does not include commission based markup. Here are several tips to help you find the right mortgage broker for the job.

What is Yield Spread Premium?

Mortgage lenders reward brokers for closing loans with above market interest rates. This broker rebate is paid because the lenders make a premium profit when the loans are sold to investors on the secondary mortgage market. Your mortgage broker receives one percent of your loan amount as a bonus for every quarter percent that you unknowingly agree to overpay.

Suppose you are in the process of refinancing your home for $250,000. The broker quotes you a mortgage rate of 5.75% and charges you an origination fee of one percent. What you mortgage broker isn’t telling you is that you actually qualified for a mortgage rate of 5% but they’ve marked it up to 5.75% for a commission. Your broker pockets $2,500 that you’re paying them for loan origination plus $7,500 from the lender for overcharging you. You get stuck paying thousands of dollars in unnecessary mortgage interest.

If you’re planning on refinancing and want that great 5% mortgage rate you’ll need to find a mortgage broker willing to work for the origination fee alone without charging you Yield Spread Premium. A reasonable amount to pay for loan origination is one percent of your loan amount and not a penny more. There are honest mortgage brokers out there willing to work for this much.

You can learn more about your mortgage refinancing options with a wholesale mortgage rate without paying lender garbage fees by registering for a free mortgage video tutorial. Register today for the videos while this is still a free offer.

Many homeowners have a difficult time choosing which type of loan is best when refinancing their homes. Taking out a new 30 year fixed rate cookie cutter mortgage every time you refinance may not be the best move for your situation. Here are several tips to help you make sense of the different mortgage products available and choose the right loan for your situation.

How Long Do You Plan on Keeping Your Home?

The first question you need to answer when deciding to refinance is how long you plan on keeping your home. Because there are expenses involved when taking out a new mortgage loan you will need time to recoup this money. If you sell your home prior to recouping this expense you will lose money by taking out a new loan. You can easily determine your breakeven point by dividing the amount you will pay in fees and closings costs by how much lower your monthly payment will be. This will tell you the number of months it will take to recoup your refinancing expenses with the lower payment amount.

What Interest Rate And Term Length Should You Choose?

Choosing a 30 year fixed rate loan when refinancing is not a good idea for most homeowners. Refinancing your mortgage with a 15 year loan allows you to build equity in your home at a much faster rate. Choosing an adjustable rate loan could allow you to take advantage of lower mortgage rates. Mortgage interest rates are still very low; however, you should weigh your tolerance for financial risk before choosing a mortgage with a variable interest rate.

What Are Your Objectives For The New Mortgage Loan?

Do you need a loan with the lowest possible payment or would you like to pay the mortgage off as quickly as possible? If you can tolerate a fair amount of financial risk and need the lowest possible payment an interest only adjustable rate mortgage could be right for you. Interest only mortgages have payments based only on the amount of interest due in a given month; however, these mortgages do not remain interest only forever. At the end of the interest only period your lender will recast your loan to a standard Adjustable Rate Mortgage amortized for the time remaining in your loan term

Amortized? What Does That Mean?

Amortization is just a fancy word for describing how your mortgage balance is paid down over time. Mortgage loans are front loaded with interest so at the beginning of your loan the majority of your mortgage payment is applied to the finance charges. Over time this reverses as the interest is paid down and more of your payment is applied to the loan balance. Because mortgage loans are front loaded in this manner it is best for you to find the lowest rate possible when refinancing. You can do this by avoiding broker markup of your mortgage rate and other garbage fees.

You can learn more about how to refinance a mortgage by registering for our free video tutorial. The videos are yours free and will show you how to save thousands of dollars refinancing your home with a wholesale mortgage rate while avoiding garbage fees.

If you are in the process of refinancing your mortgage, negotiating for mortgage rates can be very intimidating. You can greatly improve the odds of negotiating successfully by understanding how your mortgage rate is quoted. Here are the basics you need to know about mortgage rates to help you negotiate for a wholesale mortgage rate and save thousands of dollars when refinancing your mortgage.

What Are Wholesale Mortgage Rates?

Wholesale rates come directly from mortgage lenders and are generally not offered to the public. These loans are sold by third parties and include commission based retail markup. Loan originators are the mortgage companies, brokers, and websites you visit when shopping for a loan. These businesses make money by charging origination fees for their service and by markup up the wholesale rate your lender approved you. The good news is that commission based markup can be avoided if you know how to negotiate when refinancing your mortgage.

Commission Based Markup and Yield Spread Premium

Yield Spread Premium is the technical term for commission based markup of your mortgage interest rate. Your mortgage broker knows the interest rate that you were approved; however, they mark this rate up because the lender pays them a bonus of one percent of your mortgage amount for every .25% they get you to overpay. Most mortgage brokers will never admit that they are marking up your mortgage rate and many become angry and defensive when questioned about their markup.

How Do You Negotiate With Mortgage Brokers?

Negotiation can be intimidating for many homeowners. Fortunately, negotiating for wholesale mortgage rates is more like comparison shopping. If you get a mortgage broker that refuses to answer your question or agree to your terms you’ll simply move on to the next broker. Mortgage brokers are licensed by your State and are a dime a dozen. Spend a little time with your phone book and you should have no problem finding a broker willing to refinance your mortgage with a wholesale rate.

How to Get a Wholesale Mortgage Rate

You can avoid Yield Spread Premium when refinancing your mortgage by finding a mortgage broker willing to work for an origination fee alone without Yield Spread Premium. Start by telling potential mortgage brokers that you understand how Yield Spread Premium works and will not accept a mortgage that includes commission based markup. Tell your mortgage broker that you will pay a reasonable origination fee for their services. A reasonable fee for a mortgage broker’s work is one percent of the mortgage amount.

Once you’ve found a mortgage broker willing to work for an origination fee without charging you Yield Spread Premium you’ll need to pay close attention to your loan documents to ensure this person is being honest with you. Yield Spread Premium will appear on the lender’s rate lock confirmation, your HUD-1 statement, and possibly on the Good Faith Estimate (GFE). Yield Spread Premium should be disclosed on the Good Faith Estimate; however, many brokers omit this markup to make their loan offers more attractive. You’ll notice that the GFE and HUD-1 statement look very similar. If Yield Spread Premium is present with your loan you will find it around lines 810-812 of these documents.

Beware Mortgage Junk Fees

There are a number of garbage fees mortgage brokers try and slip past you when refinancing. If you find anything on your Good Faith Estimate or HUD-1 statement that resembles a rate lock fee, mortgage broker courier fee, processing fee, or application fees, these are garbage fees that you do not have to pay. Take the “rate lock fee” for example. Mortgage lenders never charge your broker a fee for locking in your interest rate. If you find this fee listed on any of your loan documents you can be sure it’s headed for your mortgage broker’s pocket.

You can learn more about refinancing with a wholesale mortgage rate with a free mortgage DVD.