Mortgage Refinance Guide

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.

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’re in the process of refinancing your mortgage loan researching current mortgage rates won’t save you a dime unless you fully understand how mortgage rates are quoted. The rate quotes you collect on the Internet and by calling around from the yellow pages are retail quotes that include commission based markup. If you want the lowest possible mortgage rate when refinancing your home you’ll need to find wholesale mortgage rates. Here are several tips to help you research current mortgage rates from wholesale sources.

Understanding Mortgage Rate Quotes

In order to accurately quote an interest rate the mortgage lender needs sixteen pieces of information about your finances. If you’re working with a mortgage broker that quotes you mortgage rates without requesting detailed information about your finances this broker has no intention of honoring whatever mortgage rate they quote you. This is a bait and switch tactic employed by many shady brokers trying to push expensive loans with above market interest rates.

What You Need to Know About Yield Spread Premium

The second thing you need to know about current mortgage rates is that the quotes you receive include so called “retail markup.” Yield Spread Premium is a bonus paid to your mortgage company or broker for making up the wholesale rate the lender approved you. Lenders pay this commission because mortgage loans with above market rates sell like hotcakes to investors on the secondary mortgage market. Lenders can afford this incentive for overcharging you because it brings in a significant amount of profit for them.

Here’s how Yield Spread Premium works. Suppose your broker quotes you a current mortgage rate of 6.75 percent on a $250,000 fixed rate loan. Your broker charges you an origination fee of one percent or $2,500, which is a reasonable fee to pay for their services. Most homeowners would jump at a loan like this without thinking; however, it’s what you don’t know that will cost you thousands of dollars unnecessarily.

In this refinancing example, what your mortgage broke isn’t telling you is that you actually qualified for a current mortgage rate of 6.0 percent! The broker marked it up to 6.75 percent because the lender pays them an additional point (one percent of your loan amount or $2500 in this example) for every quarter percent they overcharging you. If you agree to this loan the lender pays your mortgage broker three points, or $7500 on top of the $2500 you’ve already paid them. Your mortgage broker walks away from the table with $10,000 for just a few hours work. Despite this ridiculous commission you might be wondering why you should care about this mortgage broker rebate paid by the lender.

If the money isn’t coming out of your pocket why should you care what the lender pays your broker? The problem with Yield Spread Premium doesn’t come from the fact that the lender is paying the fee, it comes from the reason this fee is being paid. Most mortgage brokers will never admit that they’ve marked up your mortgage rate to get a kickback from the lender; in fact, many become angry and defensive if you bring up the subject with them. The real problem is that your broker is marking your rate up behind your back without properly disclosing what they’re doing. Many mortgage brokers go so far as to forge rate lock confirmation documents to hide what they’ve done with your interest rate.

How to Recognize Yield Spread Premium

There are two documents you receive in the process of refinancing that disclose Yield Spread Premium. The first is your rate lock confirmation provided by the lender. This is not a document typed up by your mortgage broker “locking” your mortgage interest rate. If you get any kind of rate lock guarantee from the broker that did not come from the lender (written on your broker’s letterhead for example) then you have not locked in your mortgage rate. Make sure that you get written confirmation of the lock from the lender. This document will have any Yield Spread Premium clearly disclosed on it. If your mortgage broker stalls or refuses to provide this document from the lender you know what they’re hiding and cannot be trusted.

The second opportunity you’ll have to document Yield Spread Premium associated with your mortgage is the HUD 1 statement. Make sure you get this document at least 24 hours prior to signing your contract. It will fully disclose all of the fees and markup and needs to be gone over with a fine toothed comb before you sign anything. If Yield Spread Premium is a part of your new mortgage you will find this disclosed around lines 810-11. It may be listed as Yield Spread Premium, Mortgage Broker Rebate, or YSP paid to broker. The amount listed is in dollars; you might be shocked at the number you find there.

Fortunately you can avoid Yield Spread Premium when refinancing your home. Doing this allows you to take advantage of wholesale mortgage rates and save yourself thousands of dollars. You can learn more about finding current mortgage rates that do not include mortgage broker markup by registering for a free mortgage DVD.

If you’re a homeowner you need to watch this free DVD; it could save you thousands of dollars and countless mortgage headaches.

Register today, this DVD is yours free with no obligation.