How to Refinance a Mortgage

If you are in the process of refinancing your home and are searching for information about mortgage rates there are several things you need to know about the rate quotes you receive. Most homeowners don’t realize that 90% of the rate quotes they receive from mortgage brokers and on the Internet include commission based markup included to make someone money from your loan. Understanding mortgage quotes and learning to recognize this markup will help you avoid paying too much for your next mortgage loan.

Today’s 30 Year Fixed Rate

The 30 year fixed mortgage rate has been creeping up slightly to 6.0%. This rate does include Yield Spread Premium which is intended to give a commission to the person arranging your loan. Yield Spread Premium by itself is not necessarily a bad thing; only when it is abused could you wind up paying hundreds of dollars a month unnecessarily.

What is Yield Spread Premium?

Yield Spread Premium is a percentage of your loan amount created when the mortgage company or broker arranging your loan locks and closes with a higher than market interest rate. Suppose your lender approves you for a mortgage rate of 6.0% but the broker closes you at a higher rate of 6.5%. This creates .5% of Yield Spread Premium and brings the broker a commission of 2% of your loan amount. Did your mortgage broker overcharge you? It depends on how your loan was structured and whether or not the broker told you they were marking up your mortgage rate.

Mortgage Broker Compensation

Brokers are compensated in two ways. They can charge you an origination fee for their part in arranging your loan or receive compensation from the lender with Yield Spread Premium. If the broker is charging you an origination fee for their services a reasonable fee to pay is 1-1.5% of your loan amount. Mortgage brokers typically receive one percent of your loan amount for every .25% your loan closes about the interest rate offered by the lender. If this is paid in lieu of an origination fee or used to pay your closing costs Yield Spread Premium can be a good thing; however, it is often abused when the broker charges you an origination fee and pockets Yield Spread Premium without your knowledge.

You can learn more about refinancing your home loan without paying too much in broker fees including ways to recognize and avoid lender junk fees by registering for my free video tutorial.

If you’re in the market for a new mortgage and are searching for lower mortgage rates, there are several things you need to know about the rate quotes you receive. Many homeowners think that comparing offers from several different lenders is all they need to get the best deal; however, what most people don’t understand is that they are simply comparing retail mortgage rates with the same markup. If you really want lower mortgage rates you’ll need to find someone willing to offer you wholesale rates without paying garbage fees. Here are several tips to help you refinance your mortgage with a wholesale mortgage rate and save thousands of dollars in the process.

What Are Wholesale Mortgage Rates?

Wholesale mortgage rates are offered by a certain type of mortgage lender that does not do business with the public directly. These wholesale mortgage lenders offer their best rates to mortgage brokers and other retail mortgage companies that sell loans to the public for a commission. Many people think that by contacting one of these lenders directly they can refinance with a wholesale rate; however, wholesale lenders have retail branches that deal with the public and do not offer wholesale mortgage rates. In order to refinance your loan with a wholesale rate you’ll need to enlist the help of an honest mortgage broker willing to give you access to these rates.

Mortgage Brokers Work For a Commission

The problem with refinancing your home loan with a mortgage broker comes from the way that brokers are compensated. Mortgage brokers are paid for their services in two ways. Most brokers charge you an origination fee for their services. This fee could be one percent or more of your loan amount; however, one percent is a reasonable amount to pay for your mortgage broker’s services. The second method your broker receives compensation is from kickbacks the lender pays for overcharging you with your mortgage interest rate. Many brokers mark up the mortgage rate you qualified because lenders pay a commission of one percent for every .25% they overcharge you. This commission is called Yield Spread Premium and is the reason that most homeowners overpay when refinancing their mortgage loans.

Yield Spread Premium Can Be Avoided When Refinancing

Most brokers get defensive or even angry when questioned about Yield Spread Premium. And why wouldn’t they? This markup of your mortgage interest rate can double, even triple their commission on your loan. You can avoid paying a higher mortgage rate with Yield Spread Premium by finding a mortgage broker willing to work for the origination fee alone, without this kickback from the mortgage lender.

Shop Around For Honest Mortgage Brokers

You can start your search for an honest broker to refinance your mortgage by searching the Internet for an “Upfront Mortgage Broker” in your state. Upfront mortgage brokers charge a flat fee for loan origination without charging Yield Spread Premium on your loan. The Upfront Mortgage Broker’s Association maintains a registry of brokers on their website upfrontmortgagebrokers.org that is categorized by State.

If there are no members in your State you can find the right broker by contacting mortgage brokers found in the phone book. Start by telling these brokers that you understand Yield Spread Premium and will not accept any loan offers that include this markup.

It is usually easier to negotiate this type of deal with a mortgage broker that has their own business as those working for a large brokerage firm may not have the authority to give you the deal you are looking for. You can learn more about finding the right kind of mortgage broker to refinance your home loan without paying Yield Spread Premium and other garbage fees by requesting a free mortgage refinancing DVD.