Refinance Home Mortgage Guide

If you are considering a new mortgage to refinance your existing loan, the Internet can be an excellent resource for finding a new mortgage. The problem with using the Internet to find a lender is that there are always people trying to help themselves to your money in the process. Here are several tips to help you refinance your mortgage online without paying too much.

The Internet is a wonderful tool for researching mortgage offers and finding the lowest rates. However, there are fees that you need to be aware of when dealing with online lenders. The first fee you should be concerned with is the so called “Computerized Loan Origination Fee.”

What Are Computerized Loan Origination Fees?

You might be surprised to learn that many of the mortgage sites you encounter on the internet actually have nothing to do with mortgage loans at all. These companies put up a flashy mortgage website with a form to collect your personal information. Once you hit submit your information is sold to mortgage lenders and brokers so they can “compete” for your loan.

The fact that your information is sold online isn’t necessarily bad; problems arise when the lender passes this fee back on to you. This happens in the form of a “Computerized Loan Origination Fee.” Here’s an example to illustrate how this fee is used.

You’ve probably seen commercials on television from a website boasting that when “Lender’s compete, you win.” This website boasts that there is no fee for their services; however, what these commercials aren’t telling you is that if you fill out the form on this website is that if you refinance your mortgage with one of the lenders in their network a fee of $1,300 will appear on your Good Faith Estimate. This is a fee charged by your lender paid for their part in “arranging” your mortgage. How can they claim not to be charging you a fee when the lender’s paying them out of your pocket just for filling out a form with your name and address? This is just one of the mortgage scams you’ll find on the Internet today.

Computerized Loan Origination Fees Can Be Avoided

You can avoid paying this ridiculous fee by reading the fine print on every mortgage site you visit before submitting your information. Most mortgage websites are required to disclose their fees in the “Licenses and Disclosure” section of the site. There is one exception to this disclosure requirement that you need to be aware of; a special category of lender know as a broker-bank.

Mortgage broker-banks are basically banks masquerading as a mortgage broker. The only way you’ll be able to tell the difference is by asking your representative if they close in the name of the lender or in their own company. If the answer you get is that they close in their own companies name you’ll know that you’re not dealing with an actual mortgage lender, but a broker-bank.

What’s Wrong With Broker Banks?

The problem with mortgage broker-banks is that due to a loophole in the Real Estate Settlement Procedures Act they are not required to disclose any of their fees, markup, or profit margin on your loan. Another way to tell that you’re dealing with a mortgage broker-bank is that the disclosure statements are noticeably absent from the website. Never do business with any mortgage site that does not have a disclosure statement clearly published outlining their fees and compensation.

You can learn more about your mortgage refinancing options, including expensive pitfalls to avoid like Computerized Loan Origination fees by registering for a free refinancing video tutorial.

Mortgage brokers are salespeople just like any other kind; they are paid by commission and it’s in their best interest to sell you something that gives them the largest commission. When it comes to your mortgage, the loan that offers the highest commission is probably not the best loan for your situation. Finding the best mortgage for your financial takes more than just comparison shopping; you’ll need to negotiate with potential mortgage brokers to ensure the fees and mortgage rates you’re quoted are fair.

Understanding how mortgage brokers are compensated will help you avoid paying too much when refinancing your home loan. For starters, mortgage brokers make money in two ways. Brokers are compensated by the origination fees you pay at closing and by marking up your mortgage interest rate. The origination fees you pay should never be more than 1% - 1.5 % of your loan amount; this origination fee pay is easy enough to haggle over when choosing a broker. The problem comes when the broker marks up your mortgage interest rate.

What is Yield Spread Premium? This retail markup of your mortgage interest rate is the difference between the rate you were approved by the wholesale lender and the mortgage rate you close. The mortgage broker marks up your rate because the lender pays them a bonus of 1% of your loan amount for every .25% they markup your interest rate. This frequently happens without your knowledge or consent.

The good news is that you can avoid paying this unnecessary and frequently hidden markup of your mortgage interest rate by negotiating with potential mortgage brokers. Tell your mortgage brokers that you will pay a reasonable origination fee of one percent (start low and negotiate higher if necessary) and all necessary third party closing costs. Tell your potential mortgage brokers that you understand how Yield Spread Premium works and will not accept the markup. Any honest mortgage broker will agree to these terms. Ask to see the lock agreement from the wholesale lender and compare it to the rate lock you received from your broker.

You can learn more about working with a mortgage broker without losing your shirt by registering for our free mortgage tutorial.

Refinancing your home mortgage gives you the opportunity to get cash and lower your monthly payment. For many people their homes are the single largest asset they own; this also makes the mortgage payment the largest expense for their budgets. There are several ways to lower your monthly payment and put cash in your pocket even if you cannot qualify for a lower interest rate.

Cash back refinancing allows you to take advantage of the equity you have built in your home. For many homeowners refinancing with cash back is a more affordable option than a second mortgage or home equity line of credit. Refinancing with cash back allows you to qualify for a lower mortgage rate because your home is secured by only one loan.

If your financial situation has changed since purchasing your home you may qualify for a better mortgage rate. Many homeowners find being promoted, taking a new job, getting married or divorced changes their qualifying ratios and improves the mortgage rate they receive. Even if your credit prevents you from qualifying for a lower mortgage rate you can still lower your payment amount by extending the term length of your loan. Term length is the amount of time you have to repay the mortgage; the most common term lengths are 15 or 30 years. There are now 40 and 50 year terms to allow the greatest amount of flexibility when refinancing with cash back.

The cash you receive from refinancing can be used for any reason; many homeowners use this money to consolidate higher interest debt. The advantage of using the money for this reason is that you gain a tax deduction for consolidating your bills. Other common uses include home repairs and renovations and education expenses. You can learn more about refinancing your mortgage while avoiding costly mistakes with our free mortgage tutorial.