How to Refinance a Mortgage

Points are one of the most misunderstood aspects of mortgage loans. In the simplest definition mortgage points are a percentage of your loan amount due at closing for one of two possible reasons. Here are the basics you need to know about mortgage points and how you can decide if paying them is worthwhile when refinancing your home mortgage loan.

Types of Mortgage Points

Mortgage points come in two flavors. One point is equal to one percent of your mortgage amount and is the fee you’ll be required to pay at closing. There are the discount points you pay to the lender in exchange for a lower mortgage rate and the origination points you pay to the broker for their part in arranging your loan. Brokers and lenders do not always require that points be paid; however, some lenders hide their point requirements in the fine print hoping to distract you with an unnaturally low mortgage rate.

If you don’t agree to pay the points required for that low mortgage rate you’ll find the actual interest rate is often much higher than the going market rate. This is a common bait and switch tactic used by mortgage lenders to boost their profits. Fortunately once you understand how points work this is an easy scam to avoid.

Should You Pay Mortgage Points?

Deciding whether or not paying points to the lender is in your best interest depends on how long it will take you to recoup the expense based on the lower monthly payment you are getting. We’ve all seen the commercials on television promising insanely low rates with a lot of very small print flashed up on your screen. If you pause the commercial and squint you can just make out that this lender requires two points at closing to qualify for this low rate. Does it make sense to pay the fee?

You can easily determine this with a simple mortgage payment calculator. First compare the lower payment with points to the higher payment without points. The difference between the two payments is your monthly savings. Suppose you were refinancing a $200,000 loan with this lender. Two points would amount to $2,000 due at closing. If the monthly payment is $35 lower it will take you almost five years to recoup this expense. If you plan on staying in your home for the long term paying points can be beneficial; however, if you sell your home before this you’ll be losing money by paying points.

What About Origination Points?

Mortgage brokers often charge origination points for their part in arranging your loan. Not every mortgage charges origination points as brokers can receive compensation from the lender behind your loan. If your broker is charging you a fee for arranging your loan a reasonable fee to pay is 1-1.5% of your loan amount. You can learn more about your mortgage refinancing options including costly mistakes to avoid by registering for my free video tutorial.

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Are you considering taking out a new mortgage to refinance you existing loan and want the lowest possible mortgage rate? Did you know that wholesale mortgage are available to the average homeowner who knows how to get them and can save thousands of dollars? Here are several tips to show you how rates are quoted so that you can take advantage of wholesale mortgage rates.

Banks vs. Mortgage Brokers

There are basically two types of rate quotes out there today. There are mortgage rates quoted by banks that fund loans with their own money and rates quoted by mortgage brokers reselling loans from wholesale lenders. Both types of mortgage rates are considered “retail” mortgage rates because they include markup. Banks mark up their mortgage rates to make a profit when selling their loans to investors and mortgage brokers mark up their rate quotes to get a bonus from the lender for closing loans with above market mortgage rates.

Take out a mortgage from either one of these and you’ll pay too much just to give someone a profit. If retail mortgage rates are inflated to give someone a commission, how do you refinance your home loan without paying too much? The first thing you need to do when shopping for a mortgage is avoid your bank completely. Your bank will never negotiate with you over mortgage rates or fees because they don’t need to; banks aren’t even required by law to disclose their markup or profit margins on your loan thanks to a loophole in the Real Estate Settlement Procedures Act. With this in mind why would you give your business to someone that doesn’t have to play by the rules?

Understanding Yield Spread Premium

Now that you’ve ruled out banks for your next mortgage you need to understand how wholesale mortgage rates work. These rates are offered by wholesale lenders that do not deal with the public directly; you might think you can avoid the broker by contacting a wholesale lender yourself…the only problem is that every wholesale lender has a retail division that deals with the public. Only mortgage brokers have access to wholesale mortgage rates.

Now that you know that mortgage brokers are the only way to get wholesale mortgage rates, how can you find one that won’t rip you off? While it’s true that mortgage brokers have earned a reputation for being sleazy sales types there are honest people working in the industry…you just have to find them and learn how brokers make their money.

How Mortgage Brokers Are Paid

Brokers receive compensation from two sources in a typical mortgage transaction. When taking out a mortgage you are usually required to pay an origination fee for the broker’s services. Many brokers charge a “loan processing fee” on top of their origination fee; however, this processing fee is a garbage fee you should not agree to pay. What is a reasonable fee for loan origination? One point, or one percent of your loan amount is reasonable and fair compensation for your mortgage brokers services.

The second way that mortgage brokers receive compensation is from a commission paid by the lender. Commissions are usually paid for selling something…so you might be surprised what exactly your broker sells to earn this commission…it’s a higher mortgage rate. That’s right…your mortgage broker receives a commission from the lender for closing loans with above market mortgage rates. This commission is called Yield Spread Premium and according to the Secretary of Housing and Urban Development is responsible for homeowners in the United Sates overpaying billions of dollars for their home loans every year.

You Can Avoid Yield Spread Premium

Understanding that the rate quotes you receive include commission based markup is the first step to avoiding it. Your mortgage broker receives one percent of your loan amount for every quarter percent that you agree to overpay…tell your potential mortgage brokers that you understand how Yield Spread Premium works and you’ll be in a much better place to negotiate for a wholesale mortgage rate.

You can get started by contacting local mortgage brokers in your telephone book and tell them that you will pay a reasonable fee for loan origination but will not accept a mortgage that includes lender paid compensation or Yield Spread Premium. When negotiating with mortgage brokers you may be more likely to be successful negotiating with mortgage brokers that are self employed; representatives at a large brokerage firm may not have the authority or willingness to negotiate over Yield Spread Premium.

You can learn more about mortgage rates and refinancing your home with a wholesale loan by registering for a free video tutorial. Register today while these videos are still a free offer and you’ll learn how to avoid the retail markup and garbage fees that you hear about in the news.

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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.

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The average homeowner in the United States refinances every four to five years for a variety of different reasons. Many people refinance to lower their mortgage rate; however, consolidating bills or borrowing cash are also good reasons for refinancing. Is mortgage refinancing right for you? Here are several tips to help you decide if mortgage refinancing is right for you.

Are Mortgage Rates on the Rise?

Did you purchase your home with an Adjustable Rate Mortgage and are concerned how rising rates will affect your monthly payment? If this is you, refinancing your mortgage with a fixed rate loan allows you to lock in your mortgage rate and payment amount. You won’t have to worry about payment shock when that statement from the lender arrives after your Adjustable Rate Mortgage resets. If you already have a fixed rate mortgage and rates are rising there are still good reasons for refinancing even if getting a lower mortgage rate isn’t one reason.

Are Your Payments Too Much to Manage?

If your budget is struggling under the weight of your mortgage payment you could get a lower mortgage payment by refinancing even if you cannot get a lower rate. By extending the term length of your new loan you can get a lower payment by spreading your mortgage out over more time. This is a more expensive option as you will pay more to your lender for the financing; however, if you are in a cash crunch refinancing with a longer term length could be your answer.

Is Your Option ARM Headed For Trouble?

Many homeowners used risky option adjustable rate mortgages to purchase their homes because they couldn’t qualify for traditional financing. If you did this and have only been making the minimum payment you’re headed for big trouble. The problem with only making the minimum payment with an Option ARM is that it does not cover all of the interest due in a given month. The unpaid amount of interest is simply added to your mortgage balance each and every month. This means your loan is actually growing over time.

When your loan reaches a certain amount of negative equity, often 125% of your original balance your lender will “recast” your loan to a standard Adjustable Rate Mortgage amortized for the time remaining on your loan contract. Suppose you’ve been making this payment for five years on a thirty year mortgage; your new loan will have a term length of 25 years with a balance of 125% of you borrowed. Your payments will skyrocket. If you’ve barely been making ends meet with the minimum payment amount you’re destined to lose your home to foreclosure when this happens. If this describes your situation, don’t delay…refinance now before it’s too late.

Has Your Financial Situation Improved?

If your finances have improved since purchasing your home you may qualify for a lower mortgage rate. Did you get married and now have two incomes? Did you get a better paying job or pay off some of your debts? If your credit score is higher now than when you purchased your home you could qualify for a much better rate and lower your monthly payment at the same time.

Do You Have Private Mortgage Insurance?

If you used a 100% mortgage loan to purchase your home the lender might have required you to purchase Private Mortgage Insurance (PMI) at the time. The premiums for this insurance are included in your monthly payment and can add hundreds of dollars to your bill each month. You can save yourself some money by asking your lender to cancel your insurance; as long as you’ve been making your payments on time and have reached a certain amount of equity in the home the lender will cancel your PMI. If cancelling your PMI is not an option refinancing could save you a hundred dollars each month; even more.

Do You Want to Borrow Cash or Consolidate Bills?

If you have equity in your home this money is available to you for any reason you like. You can use this to pay off high interest credit cards, use the money to renovate or repair your home. Because you’re borrowing against the equity in your home you can use this money for any reason; there are no limits or restrictions on how your use of the cash.

You can learn more about refinancing your mortgage with a wholesale mortgage rate without paying lender garbage fees with a free mortgage DVD. Register today, the DVD is yours with no strings attached whatsoever.

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The mortgage industry is undergoing the worst crisis lenders have ever faced; if you’re considering refinancing your mortgage it’s more important than ever do your homework and choose an honest lender. Here five common mortgage refinancing mistakes you need to avoid in order avoiding paying too much for your next loan.

Mistake Number One: Going for the “Cheapest” Loan

The cheapest mortgage offer isn’t necessarily the best loan for your situation. Turn on the television and you’ll see lenders bragging about their “unbelievable mortgage rates” or “no closing costs” loan offers. These loans are nearly always loaded with fees and unnecessary markup of your mortgage interest rate; always treat these loan offers with a healthy dose of skepticism. Most mortgage representatives are simply trying to get your application and commit to the loan; after you’ve done this you are at the mortgage company’s mercy for rates and fees. This is why you should choose loan offers carefully and make sure nothing changes once you’ve committed to a loan offer.

Mistake Number Two: Comparing Dissimilar Loan Offers

When you’re comparing mortgage offers it’s important to compare similar loan types. Comparing a 30 year fixed rate mortgage to a 15 year loan with an Adjustable Mortgage Rate does you no good. Keep in mind that a company with great fixed rate loans may not have the best adjustable rate offers. Make sure you are using the Good Faith Estimate to compare loan offers and are making apples to apples comparisons before choosing a lender.

Mistake Number Three: Relying on the Annual Percentage Rate

Many people think the Annual Percentage Rate (APR) is the best way to compare loan offers. While it’s true that Truth-in-Lending laws require lenders to publish Annual Percentage Rates, which is supposed to tell you the total cost of a loan expressed as an annual percentage, there is no standard for calculating this rate. The APR from one lender may not reflect the same costs as an APR from another, making this figure completely useless.

Mistake Number Four: Not Requesting a Good Faith Estimate

Mortgage lenders are required to provide you the Good Faith Estimate after receiving your application; however, most lenders will provide you this document upon request. This document is an itemized list of all expected fees you will be responsible for paying; however, keep in mind that the Good Faith Estimate is only an estimate. Dishonest mortgage companies change loan offers and terms after you’ve committed to a loan. This is why it’s important to reconcile your Good Faith Estimate with the HUD-1 statement before signing the contract.

Mistake Number Five: Shopping Over a Period of Time

Interest rates change on a daily basis. If you do your comparison shopping over a period of days or weeks the mortgage rates you compare may no longer be available. Try to limit your comparison shopping to one morning or afternoon at a time. This will allow you to keep up with changing interest rates.

You can learn more about your mortgage refinancing options, including other mistakes to avoid by registering for a free video tutorial. The videos walk you through the entire process of refinancing with a wholesale mortgage rate, saving you thousands of dollars in the process.

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