Home Mortgage Refinancing Guide

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.

If you’re considering refinancing your home loan with a mortgage broker there are several things you need to know in order to avoid paying too much. Mortgage brokers can be an excellent resource for finding loan offers you wouldn’t have access to on your own; however, unless you know how to negotiate with mortgage brokers you’ll be refinancing with a mortgage rate that includes commission based markup and unnecessary junk fees.

Here are several tips to help you find the right mortgage broker allowing you to refinance with wholesale mortgage rates while avoiding garbage fees.

What Are Retail Mortgage Rates

The biggest mortgage broker secret today is also the sleaziest. Mortgage brokers take wholesale rates and markup them up to get a commission from the lenders. They do this even though you’re paying them an origination fee for finding you a loan…lining their pockets at your expense. Here’s an example how this commission based markup works.

Suppose you’re refinancing a $250,000 mortgage loan for 30 years at 6.75%. Your mortgage broker charges you an origination fee of 1.25% which means you’ll have to pay $3,125 at closing for your broker’s services. What your mortgage broker isn’t telling you is that you actually qualified for a 6.0% mortgage rate from the lender that approved your application and they’ve secretly marked your rate up to 6.75%. Most mortgage brokers never admit that they’re doing this with your interest rate and if you were to question the markup they would try and explain it away.

Many mortgage brokers go so far as to fabricate rate lock confirmation from the lender to hide what they’re doing with your mortgage rate. If you were to see the actual rate lock from the lender this markup of your interest rate is clearly disclosed. The final opportunity you have to catch your mortgage broker’s dirty little secret is on the HUD-1 statement. The fee your broker receives for overcharging you is disclosed around lines 810-811 of this document; you will often see it called mortgage broker rebate, YSP paid to mortgage broker or Yield Spread Premium.

In the previous example he mortgage broker receives 1% of your loan amount for every quarter percent that they secretly overcharge you. This mortgage broker walked away with $7,500 on top of the $3,125 you’re already paying for their services. That’s $10,625 for a few hours of dishonest work. Don’t be a victim of these mortgage broker secrets…by doing your homework you can avoid this unnecessary markup of your mortgage interest rate and garbage fees like loan processing fees and rate lock fees to name just to name a couple.

You can learn more about refinancing your mortgage with a wholesale rate by registering for a free mortgage video tutorial. The videos will show you not only how to avoid paying too much with unnecessary junk fees and markup of your mortgage interest rate, but how to tune up your credit score before you apply for a new mortgage and get the lowest possible interest rate. Register today while this is still a free offer.