Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice » current mortgage rates

How to Avoid Mortgage Fat Cats When Refinancing Your Home Loan

Robert — Tue, 25 May 2010 18:02:14 +0000

Did you know that nearly all of your neighbors are currently paying too much for their home loans? Do you want the lowest home mortgage refinancing rates but don’t want unnecessary markup and junk fees? Refinancing your home is a lot like buying a used car and there are plenty of people out there trying to make a buck at your expense. Here are some of my best tips for avoiding the mortgage fat cats when refinancing your home loan that could save you as much as $1200 per year.

Unnecessary Mortgage Rate Markup

Did you know that the quotes you get online and over the phone all include markup to make a profit for someone at your expense? This is in addition to any origination fee you’re already paying this person for arranging your home loan. The good news is that you can avoid this unwanted markup of your home loan interest rate and lower your monthly payment allowing you to keep more cash in your pocket at the end of the month. Before we get to that I need to explain a little more about this markup of your home loan interest rate.

Mortgage Yield Spread Premium

Yield Spread Premium is a fee paid by your lender to the person arranging your home loan for locking and closing your mortgage with a higher than necessary mortgage rate. I say higher than necessary because your lender approved you for a specific interest rate; however, this person arranging your loan marked it up to receive Yield Spread Premium from the lender. The problem with this markup is twofold: first it drives your monthly payment taking more cash out of your pocket. Second, you’re already paying this person a perfectly good origination fee for their services, yet they’re taking advantage of you by collecting this fee from your lender.

Most of the mortgage fat cats will tell you since this fee is being paid outside of closing by the lender and isn’t coming out of your pocket that you shouldn’t worry about it. The problem isn’t the fact that the fee isn’t coming out of your pocket but why it’s being paid and what it does to your payment. Here’s an example to illustrate my point.

Yield Spread Premium in Action

Suppose for instance that you’re refinancing your home loan for $275,000. Your broker quotes you a mortgage rate of 6.5% and charges you a loan origination fee of 2%. This means that you’ll be required to pay $5,500 in origination fees at closing for the broker’s work on your home loan. Don’t get me wrong, brokers should get paid for their work, just not by taking advantage of their customers. Keep in mind that a reasonable fee to pay for loan origination is 1% of your home loan amount so this mortgage broker is overcharging your for the origination fee.

If you agree to refinance your home with these terms your monthly payment on a 30 year, fixed rate home loan would be $1,738 per month. What your mortgage broker isn’t telling you is that you actually qualified for a 5.75% interest rate and they marked it up to 6.5% to collect Yield Spread Premium. If you had gotten the home loan you deserve at 5.75% your monthly payment would only be $1600 a month. That’s a savings of $1,656 per year! The good news is that you can avoid this unnecessary markup of your home loan interest rate AND you don’t have to be some kind of financial guru to pull it off.

You can learn more about avoiding the mortgage fat cats when refinancing and getting a wholesale mortgage rate for yourself by checking out my free Underground Mortgage Videos.

Here’s a sample of what you’ll get today you register for my free password protected member’s area. This short video is about the Yield Spread Premium your mortgage broker tries to slip past you when refinancing your home loan.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

Should I Refinance My Mortgage Loan?

Robert — Sun, 21 Feb 2010 21:23:13 +0000

If you’re contemplating refinancing but aren’t sure if a new home loan is right for you, there are several things you’ll want to consider before taking out a new mortgage. There are a number of old wives’ tales and loads of misinformation on the internet that can get in the way of making informed financial decisions. Here are several of my best mortgage tips to help you answer the question “Should I Refinance My Mortgage” without falling victim to the sea of misinformation online.

Should I Refinance My Mortgage Loan?

There’s an old wives’ tale told to this day by a number of “financial advisors” that states you should never refinance your home loan unless your new mortgage rate is at least two percent lower than your old mortgage rate. This is horrible mortgage advice. Instead of buying into the two percent rule of mortgage refinancing it makes more sense to base your decision on a cost and savings rather than this urban legend of financial advice. This is of course if lowering your payment is your goal when refinancing your home.

Let me explain…we all know that you loan amount and mortgage rate determine your monthly payment amount. This is done with a repayment process known as amortization. What it all boils down to is the lower your mortgage rate, the lower your monthly payments will be; however, there are refinancing costs you’ll need to consider also. I am of course referring to origination fees and closing costs. When answering the question Should I Refinance My Mortgage for you, it makes good financial sense to weigh the savings from your new, lower monthly payment against the cost of taking out the new home loan. If you can live with the amount of time it will take to recoup your origination fee and closing costs than mortgage refinancing makes good sense for you.

Here’s an example to illustrate how this works. Suppose your current mortgage rate is 6.5% on a 30 year, $250,000 fixed rate home loan. Your monthly payment on this home loan is $1,580 per month. Suppose you qualify for a 5.5% mortgage rate and your closing costs will be $6,500. Your new monthly payment with the lower 5.5% mortgage rate will be $1,418, which is a savings of $162 per month. Since you’re paying $6,500 in fees to save $162 per month it will take you 40 months, just over three years to recoup this expense before you realize any savings from your new mortgage. If you can live with three years then the answer to the question Should I Refinance My Mortgage is yes.

There are of course other reasons for refinancing that don’t result in a lower monthly payment. Many homeowners used risky adjustable rate loans to purchase their homes and are facing balloon payments or skyrocketing interest payments when their teaser rates expire. Refinancing these risky home loans with a fixed 30 year home loan is nearly always going to be the right choice. Another common reason for refinancing is to borrow cash against your home equity which could also result in a higher monthly payment.

How to Save Money When Refinancing

Once you’ve answered the question Should I Refinance My Mortgage the question becomes how can I do this without getting ripped off? There are a number of unnecessary junk fees and markup of your mortgage rate for a double commission that you’ll want to avoid to make sure you get the most for your refinancing dollar.

You can learn more about answering the question Should I Refinance My Mortgage for yourself while avoiding unnecessary junk fees or markup by checking out my free Underground Mortgage Refinancing Videos.

Here’s a sample of what you’ll get…this video explains why 95% of your neighbors pay too much for their home loans.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

No related posts

Mortgage Closing Costs Explained

Robert — Sun, 13 Sep 2009 21:54:27 +0000

If you’re in the process of refinancing your home mortgage loan you might be concerned about the closing costs your lender is quoting you… and rightly so. Mortgage lender junk fees and unnecessary markup will be responsible for American homeowners overpaying nearly sixteen billion dollars this year alone according to the Secretary of Housing and Urban Development. So how can you minimize your closing costs while avoiding unnecessary fees and make sure you’re not part of this statistic? Read on… this article has my best mortgage refinancing tips to help you avoid paying too much for your next home loan.

Mortgage Closing Costs Explained

Closing costs on your home mortgage loan are the fees you’ll pay up-front like home appraisal fees, loan origination fees, title fees, discount points, recording, underwriting, and loan processing fees. These fees are first presented to you on your Good Faith Estimate; however, mortgage lenders and brokers are notorious for low-balling closing costs on the Good Faith Estimate. The only reliable document for scrutinizing your closing costs is the Hud-1 Settlement Statement. This is unfortunate that bait and switch has become common practice in mortgage lending in the United States and ultimately why most of your neighbors overpay for their home loans.

The first closing costs I’m going to explain today technically aren’t a closing cost; however, you still have to pay it at closing and are prepaid interest, taxes and insurance. (You’ll have to pay interest from the day you close until the end of the month at closing making it advantageous to close on the last day of the month.) Your actual closing costs are called “hard costs” and are the fees paid to the mortgage lender or any third party company involved with your closing. These hard fees associated with your mortgage are the origination fee, underwriting fee, and loan processing fee. Anything you pay for title charges are escrow costs and fees paid for title insurance. Any reserves you might be required to pay go to the escrow account to pay your taxes and homeowners insurance premiums. Escrow accounts are how lenders protect themselves by ensuring your property taxes and homeowner insurance is paid on time; a service you’ll have to pay for if escrow is required on your loan.

Mortgage Refinancing Closing Costs

It can be common practice to roll your closing costs into the loan balance when refinancing your home; however, if you do this you’ll be paying these costs over and over again for the duration of your loan…especially if you opt for a no cost mortgage loan. It’s always better to pay closing costs and origination fees up front rather than accepting a higher mortgage rate and loan amount to cover the difference. If you have an escrow account on your original mortgage you cannot transfer it to your new mortgage; you’ll have to create a new escrow account and pay any fees associated with this new account.

Average Mortgage Closing Costs

Closing costs vary from one state to the next and from one lender to the next. Also, if there is an attorney involved your closing costs will be higher. Not including the attorney and mortgage broker fees you could estimate your closing costs anywhere from 1.5% to 2.0% of your loan amount. The origination fee needs to be considered separately because this is charged by your mortgage broker and is frequently overcharged. If your mortgage broker is charging you an origination fee they should not be marking up your mortgage rate for a commission from the lender, which is another topic I’ll get to shortly.

No Closing Costs Mortgage Loans Are a Lie

What about these lenders that advertise no closing costs or a flat $395 fee for their mortgage loans? There’s no such thing as a “No Closing Cost” mortgage loan. Your closing costs, especially the ones paid to third party companies have to be paid no matter what the mortgage lender’s pitching. Carefully read the fine print and you’ll find out that these loan originators are using a fee known as Yield Spread Premium to pay your closing costs.

Yield Spread Premium is a fee paid by the wholesale lender when you accept a mortgage with a higher than necessary mortgage rate. It is a cash percentage of your loan amount, one percent for every .25% you agree to overpay, and results in a higher than necessary mortgage payment. (Several hundred dollars a month or more…) If you want the lowest possible mortgage rate and payment amount you must avoid any form of Yield Spread Premium. It’s not just “No Cost” mortgages that use Yield Spread Premium…at least with these loans the money is going towards your losing costs. There are a whole lot of mortgage brokers out there that pocket this kickback from the lender as part of their commission. Avoiding sleazy mortgage brokers is the one of the topics from my free Underground Mortgage Videos.

What About Mortgage Junk Fees

So how do you know which fees on your Good Faith Estimate and Hud-1 Statement are junk? Most of the third party charges on your Good Faith Estimate that don’t come from the broker are on the level and can’t be avoided. Attorneys, surveyors, and appraisers all need to be paid as part of getting a home loan. Underwriting fees are fairly standard and if you don’t like a particular lender’s underwriting fees you can always go to another lender. As for the junk fees you’re likely to encounter when refinancing your home, they typically come from the loan originator. Your mortgage company or broker is responsible for nearly all of the junk fees out there.

What are mortgage junk fees? We already talked about Yield Spread Premium. Anything resembling a rate lock fee is pure garbage. There isn’t a lender out there that charges a fee for locking in your mortgage rate… if your broker claims there is a fee for rate lock you can be certain you’re dealing with a dishonest mortgage broke. Mortgage broker courier fees are also pure junk. Origination fees and processing fees aren’t junk but are frequently abused. Don’t agree to pay more than one percent for loan origination and any loan processing fee greater than $400 is also garbage.

You can learn more about refinancing your home mortgage and closing costs by checking out my free Underground Mortgage Videos. These videos walk you through every aspect of refinancing your home including how to recognize and avoid junk fees like Yield Spread Premium in easy-to-understand terms without jargon.

Here’s a taste of what you’ll get when you sign up, this video is about your mortgage originator’s (the person arranging your loan) dirty little secret…

Register today before this offer is gone and you’ll get immediate access to these Underground Mortgage Videos without downloading anything to your personal computer.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

The Ugly Truth About Bank Mortgage Rates

Robert — Sun, 16 Aug 2009 03:31:33 +0000

If you’re in the market for a new mortgage loan or are thinking about refinancing your existing home loan, you might be considering taking out the mortgage loan from your bank. While it’s true that bank mortgages are a convenient way of taking out a home loan, if you want the best mortgage rates and lowest mortgage payment there is a very compelling reason for avoiding banks. Here are my best mortgage tips to help you avoid paying too much for your next home mortgage loan.

Best Mortgage Rates

Shopping for a mortgage loan is a confusing process for many homeowners. Most people just compare mortgage rates from their bank with a couple mortgage companies out of the phone book thinking that the biggest banks and lenders offer better deals. This might be true for products from the Wal-Marts of the world, when it comes to mortgage loans this mindset will cause you to overpay thousands of dollars.

Mortgage rates, especially those from your bank do not work like other retail purchases you make, buying a plasma television for example. You would think Bank of America, Wachovia Bank, and Wells Fargo Mortgage would offer discount mortgage rates because they are high volume lenders; however, this is simply not the case.

Home mortgage rates, it doesn’t matter if they’re from a wholesale lender or any bank, are not like other consumer products. There is no volume discount when it comes to home loans so it makes no difference if you take out a home loan from a mortgage giant like Wells Fargo Mortgage or the mom and pop mortgage company in a small town. This doesn’t mean that both types of lenders, large corporate giants and small time mortgage brokers alike, don’t have overhead costs that include marketing, office spaces, and the occasional company hummer. (Trust me on this point…you do not want to work with any mortgage company or broker you see tooling around in a hummer with their face and logo splattered all over it.)

Mortgage Rates Are Investment Driven

The mortgage markets do not behave like other retail markets when it comes to supply and demand. When demand is low mortgage rates typically go up…unlike supply and demand of physical products. This is because mortgage rates typically follow the yield, which is return on investment, in the bond markets. When the bond yields are low, which usually corresponds to bad economic news like the current recession, mortgage rates go down. When the bond yields are high mortgage rates go up because the demand of investors affects long term interest rates like what you pay on a 30 year fixed rate mortgage. It’s next to impossible to try and time the market when it comes to mortgage rates. Your energies are best spent shopping for the right person to arrange your next home loan rather than trying to predict when mortgage rates are going up or down.

What You Need to Know About Bank Mortgage Rates

Banks are not wholesale lenders nor do they offer their customers wholesale mortgage rates. Bank mortgage rates are set by the bank and if you’re willing to pay for a bank mortgage loan you’re welcome to take their rate or leave it…no negotiating. You would think that your bank has to be competitive with wholesale lenders in order to remain competitive in the marketplace; however, that’s not how banks operate when it comes to mortgage loans. Banks rely on the fact that most homeowners don’t understand how mortgage rates work to drive their profits, taking advantage of most people’s lack of knowledge. Most people fall victim to the notion that bigger is better when it comes to mortgage loans, a notion that results in overpaying thousands of dollars more often than not.

One of the biggest problems with bank originated mortgage loans is that your bank is exempt from the Real Estate Settlement Procedures Act and is not required to disclose any of their profit margin or markup on your loan. All the bank is required to disclose to you is an Annual Percentage Rate that they base on a Good Faith Estimate that has all of the fees low-balled to make the overpriced home loan seem more attractive.

Banks don’t offer wholesale mortgage rates to their customers because the bank makes most of their profit when your loan is sold to investors on the secondary market. Your bank may continue to service the loan after they sell it meaning you’ll never know the fast one your bank pulled on you. The profit your bank makes from selling your loan with a higher than market mortgage rate is called Service Release Premium. If you never shop from a wholesale mortgage source such as an honest mortgage broker you’ll never know how much the bank is overcharging for their mortgage loans.

If you want the lowest possible mortgage rate to purchase or refinance your existing home loan you’ll need to get a wholesale mortgage rate which is also known as a par mortgage rate. This means you can’t shop for the “best mortgage” lender or bank, you’ll have to shop for the right person to arrange your next home loan to get a wholesale mortgage rate.

You can learn more about finding the right person to arrange your next home loan so you can take advantage of wholesale mortgage rates while avoiding unnecessary mortgage junk fees by registering for my free underground mortgage refinancing videos. Here’s a sample of what you’ll get when you sign up today:

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

Today’s 30 Year Fixed Mortgage Rate

Robert — Wed, 17 Sep 2008 17:44:54 +0000

If you are considering taking advantage of this month’s low mortgage rates but don’t want to pay too much when refinancing there are several things you need to know about the rate quotes you receive. Here are several tips to help you make sense of it all and avoid paying too much when refinancing your home loan.

Today’s 30 year fixed mortgage rate is 5.5% with .5% of Yield Spread Premium.

You won’t get this rate just by calling up your bank or going to a site like Lending Tree. This is as close as a wholesale rate that is available today and you have to go through a mortgage broker to get this rate without paying excessive points or fees.

You might not be familiar with Yield Spread Premium; this is the fee that inflates your mortgage rate to create a commission for the person arranging your loan. This artificial markup of your mortgage rate can be avoided if you understand mortgage rate sheets. You can get your hands on the lenders current rate sheet by asking to see it the day you lock your rate. An honest mortgage broker will show you the lenders rate sheet; dishonest brokers make excuses telling you that the rate sheets are “proprietary” and “confidential.”

If you want a wholesale or “par” mortgage rate you just have to learn how mortgage loans are priced using the lender’s rate sheets. Keep in mind that mortgage rate sheets change on a daily basis and that you are trying to avoid the markup of your mortgage rate to create unnecessary commission.

You can learn more about avoiding this unnecessary markup of your mortgage interest rate and other junk fees by registering for the free video tutorial found on this web site.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

Current Mortgage Rates Falling

Robert — Tue, 09 Sep 2008 19:04:41 +0000

Current mortgage rates are declining and are expected to fall further because of the Government takeover of Freddie Mac and Fannie Mae. Mortgage Rates have been rising steadily due to the recent credit crisis in the United States.

Today on FOX News Warren Buffet stated that that the current mortgage rates are based on a phenomenon known as credit spread, and that “spread” is the reason that mortgage rates have been on the rise. The spread is the result of a lack of investor confidence in mortgage backed securities. The debt carried by Fannie Mae and Freddie Mac was headed for a crisis had the Federal Government not stepped in by taking over.

After the Federal Government took over, current mortgage rates are now more like Treasury bonds. These bonds carry very low risk and have low yields and interest rates. When the Government took over Fannie Mae and Freddie Mac mortgage loans became less risky overnight; as a result mortgage rates are declining.

Now is a great time to refinance your higher interest rate mortgage or even consolidate your more expensive home equity line to lock in this lower rate. Despite falling mortgage rates there are a number of reasons that people overpay when refinancing. The least known but most common is Yield Spread Premium. This markup of your mortgage interest rate for a commission by the broker is responsible for American homeowners overpaying nearly sixteen billion dollars this year alone according to the HUD Secretary.

Homeowners who learn how to recognize this markup of their mortgage interest rate are able to take advantage of wholesale mortgage rates and save thousands of dollars ever year. If you’d like to learn more about refinancing your mortgage with a wholesale rate while avoiding lender junk fees sign up for the free video guide available from this website.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

When Does Mortgage Refinancing Make Sense?

Robert — Tue, 29 Jan 2008 01:17:54 +0000

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.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

Refinancing Your Mortgage Loan During a Recession

Robert — Tue, 22 Jan 2008 23:34:22 +0000

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.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice:

Current Mortgage Rates

Robert — Wed, 09 Jan 2008 00:56:41 +0000

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.

---
Related Articles at Refinancing Home Mortgage, Avoid the Traps, Get Expert Advice: