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.

Most homeowners don’t understand how their mortgage broker is paid for the work they do arranging a home loan. Brokers are compensated for their work from two sources; understanding how this compensation works will help you avoid paying too much for your next mortgage loan. Here are several tips to help you understand how mortgage brokers overcharge people to boost their commissions.

What is YSP?

YSP or Yield Spread Premium is a fee paid by the wholesale lender when your broker locks and closes your mortgage with an above market interest rate. Lenders reward mortgage brokers for overcharging because these loans bring a premium profit when sold to investors. The amount of Yield Spread Premium depends on how much your broker overcharges you. For every .25% you agree to overpay the broker’s “kickback” is 1% of your loan amount.

Suppose you are refinancing your home loan for $250,000. The broker quotes you a rate of 6.75% but doesn’t tell you that you’ve qualified for 6.0%. The spread between what you could have had and what you got is .75% which creates 3% of Yield Spread Premium for the broker. Your broker receives a kickback of $7,500 from the lender for overcharging you…in addition to the origination fee that you’re already paying.

Yield Spread Premium can be hard to spot unless you know what to look for. Many brokers “forget” to list the fee on your Good Faith Estimate. If this is the case the next opportunity you will have to catch it is on the rate lock confirmation from the wholesale lender. Make sure the confirmation you receive after locking your rate comes from the lender and not the broker…many brokers provide rate lock confirmation typed up on their own letterhead. If you get a rate lock confirmation typed up on the broker’s letterhead you do not have proof of anything…let alone guaranteeing your mortgage rate.

Your last opportunity to catch Yield Spread Premium before closing on your new mortgage will be on the HUD-1 statement. The fee is usually listed around lines 810-811; however, you may find it further down. It is often called “mortgage broker rebate” or “YSP paid to broker.” If you find this on your HUD-1 statement you have a mortgage rate that includes commission based markup.

The Perfect Mortgage Loan

Most homeowners don’t know what a good mortgage deal looks like. It is possible to get a wholesale mortgage rate without Yield Spread Premium and pay a one percent origination fee to the broker. You can learn more about refinancing your home with a wholesale mortgage rate while avoiding junk fees by registering for my free video tutorial.

Since mortgage rates have been in near freefall this week several people have asked me about breaking mortgage rate locks. Here’s the skinny you need to know about locking in your mortgage rate.

While most mortgage brokers will tell you that a rate lock is an agreement between you and the lender that you cannot walk away from, the truth is that you can and the pressure you mortgage broker is applying is a load of crap. Can’t say that I blame them, after all their commissions are on the line…but the truth is you can walk away from the table at any time…Even After You’ve Signed The Contract.

Mortgage Rate Locks

What is a mortgage rate lock? Really all rate locks are is a “promise” from your lender to give you a certain mortgage rate if you close before the lock expires. Are mortgage lenders obligated to honor their rate locks?

The answer may surprise you… No, lenders are not obligated to honor thier own rate locks. Mortgage lenders build so much wiggle room into their rate locks they can back out of them almost at will. You’re not signing a contract when you lock in your mortgage rate but if rates go down 99% of lenders will not give you the lower rate.

If your mortgage lender refuses to give you the lower rate why should you stay? A mortgage is a huge financial commitment and you should make sure you’re getting the best possible deal before signing on the dotted line. Don’t ever let a mortgage broker or lender pressure you into thinking that since you’ve locked in a mortgage rate you’re obligated to take out the loan. This type of pressure sales is not only unethical but a despicable practice.

Your Rights Under The Law

You can walk away from the table at any time. If you’re being pressured by a broker or your gut tells you something isn’t right, walk away. Mortgage brokers and lenders are a dime a dozen and there are honest people working in this industry that want to get you a good deal in exchange for your business. What can you do if you already signed the loan contract? You still have time to change your mind. There are three business days before your loan is funded that you can change your mind and walk away from the deal. See Three Day Rescission for more information about backing out before your loan is funded.

To summarize, a rate lock does not mean you are obligated to borrow. Never let anyone pressure you into any type of loan…this is a sure recipe for disaster. Do your homework, learn about Yield Spread Premium and make informed decisions when it comes to your mortgage. All the information you need to do this is available for free on this website. There is absolutely nothing for sale here…the articles and mortgage videos are all free.

If you’re in the process of refinancing your mortgage with a broker, the answer to this question is important if you want to avoid paying too much for your new home loan. The compensation your broker receives for originating your mortgage is not only based on the fee you pay but includes a kickback from the lender based on how much you agree to pay or overpay.

This lender kickback is the reason that American homeowners will overpay sixteen billion dollars for their home loans this year according to the Secretary of Housing and Urban Development. Here is an explanation of how your broker is paid and what you can do to avoid paying too much for your next mortgage loan.

Origination Points

The first method your mortgage broker is paid for their services is by charging you a fee. This fee is often called “origination points” or an “origination fee.” One point is the equivalent of one percent of your mortgage amount due at closing. How much is reasonable to pay for loan origination? In most cases you should not agree to pay the broker more than one percent for mortgage origination. Any more than one percent and your mortgage broker is taking advantage of you with this fee.

Yield Spread Premium

The second method of mortgage broker compensation that I’ll discuss today is called Yield Spread Premium. This is a fee, also called a P.O.C. charge (Paid Outside of Closing Fee) paid by the lender. You might be asking “If this fee is paid by the mortgage lender, why should I care about it.” The problem with Yield Spread Premium doesn’t come from the fact that your lender is paying the broker a fee, but why this fee is being paid in the first place. Mortgage brokers receive Yield Spread Premium as an incentive for closing loans with above market mortgage rates.

Mortgage Yield Spread Premium is a commission paid to your mortgage broker for overcharging you. That’s right…for every quarter percent you agree to overpay for your new mortgage loan the broker gets a kickback of one additional percent of your loan amount. In most cases this will double, even triple your mortgage broker’s compensation for your loan. The problem with this markup is that most mortgage brokers will never admit that they’ve marked up your mortgage rate and go great lengths to conceal what they’re doing.

How to Recognize Yield Spread Premium

The first opportunity to spot this markup of your mortgage rate is when you lock in your rate. If your mortgage broker actually requests a rate lock from the lender he or she will receive written confirmation of the lock. This rate lock from the wholesale mortgage lender will clearly display any markup of your mortgage interest rate. The problem is that many brokers type up a bogus rate lock confirmation on their own company letterhead that does not include Yield Spread Premium. This rate lock is completely worthless because it did not come from the lender and only serves to hide what the broker did to your mortgage rate.

Many brokers falsify this document and never actually lock in your mortgage rate. When the deal falls through because there was no lock the broker will find a way to switch you a more expensive mortgage product. This is a common bait-and-switch tactic used by many dishonest mortgage brokers. When you lock in your mortgage rate always insist on seeing the actual guarantee from the lender and never accept anything on your mortgage broker’s letterhead.

Yield Spread Premium on Your HUD-1

Your second opportunity to catch Yield Spread Premium on your loan is with the HUD-1 Statement. Your mortgage broker cannot falsify this document; however, you might not recognize the fee as Yield Spread Premium. If your loan includes the lender kickback it will be disclosed on lines 810-811 of the HUD-1. You might see it called “mortgage broker rebate” or “YSP paid to broker.” Whatever dollar amount you find on this line is the kickback your broker receives for overcharging you.

You Can Refinance With a Wholesale Mortgage Rate

Most homeowners don’t understand that they can refinance with a wholesale mortgage rate without paying this “retail” markup. You can find mortgage brokers willing too give you wholesale rates once you know how to negotiate the deal. If you’d like to learn more about negotiating with mortgage brokers for wholesale rates register for our free mortgage video tutorial.

If you are in the process of refinancing your mortgage you might encounter POC charges. POC stands for “Paid Outside of Closing” and is a fee paid to your mortgage broker. Why does your broker receive this money and should you be concerned about how it affects your mortgage rate? Here are several tips to help you understand POC charges and avoid being taken advantage of when refinancing your mortgage loan.

What Are Paid Outside of Closing Fees?

This charge appears on your HUD-1 statement on line 810-811. It is frequently called a mortgage broker rebate but you will also see it called Yield Spread Premium or YSP paid to broker. This fee is a commission paid by the lender for closing your loan with an above market mortgage rate. That’s right; your lender rewards the broker for overcharging you.

P.O.C. Charges = Yield Spread Premium

Yield Spread Premium is the technical term for the incentive paid to your broker for overcharging you. Your broker knows the mortgage rate you qualify based on your financial details; (it actually takes sixteen pieces of financial information form you to accurately quote a mortgage rate) however, your broker marks up the rate based on what they think you’ll pay. Imagine a used car salesman pricing a car based on how naive they think the buyer is…mortgage brokers work in much the same.

Your mortgage broker marks up your rate because the lender pays a bonus of one percent of your loan amount for every quarter percent they overcharge you. This kickback from your lender is the Yield Spread Premium and will often double or even triple your mortgage broker’s compensation for originating your loan, at your expense of course.

How Can You Avoid P.O.C. Mortgage Charges?

Fortunately homeowners who do their homework can avoid POC charges and refinance their home loans with wholesale mortgage rates while avoiding unnecessary garbage fees. Refinancing with a wholesale rate can save you thousands of dollars and RefiAdvisor’s free DVD will show you how to do just that. Register for your free refinancing DVD today, the videos are yours with no obligation.