Refinance Home Mortgage Guide

No fee mortgage refinancing simply doesn’t exist. You’ll see advertisers on television like Bank of America bragging about their no cost, no fee mortgages; however, no cost mortgage refinancing is a lie. Here is the truth you need to know about no fee mortgage refinancing to prevent falling victim to these empty promise of no fee mortgage loans.

Every mortgage loan sold today has closing costs and fees that have to be paid one way or the other. When an advertiser claims that their loans have no fees, they are not telling you the whole story. Mortgage closing costs get paid in one of three ways:

You can pay cash at closing.

You can roll the costs into your loan balance.

You can take a higher mortgage rate instead.

In the case of “no fee” mortgage you see advertised on the radio and television you are taking a higher mortgage rate in exchange for the lender covering your costs. This is also true of the “low flat fee” mortgages you see advertised by companies like Ditech. There are always closing costs including those paid to third party companies when taking out a mortgage. When you fall for one of these “no fee” mortgage loans your lender is locking your mortgage rate high enough to pay your closing costs.

You might be asking how a higher mortgage rate could cover your closing costs. The reason this happens is what’s known as the mortgage industries dirty little secret. Yield Spread Premium is the industry term for the fee wholesale lenders pay for closing loans with above market mortgage rates. The higher mortgage rate you agree to pay when refinancing, the more profit your lender makes when the loan is sold to investors on the secondary market. This is why lenders pay a commission to loan originators for closing loans with above market rates.

Lenders that you see advertising “no fee” mortgage loans are simply using this fee to pay your closing costs. Banks do the same thing as other mortgage lenders they just give it a different name. You are simply agreeing to a higher mortgage rate which results in a higher payment amount every month that you keep the loan to avoid paying closing costs. What’s wrong with using Yield Spread Premium to pay closing costs?

Yield Spread Premium Can Be Avoided

This markup of your mortgage interest rate is not only completely unnecessary, but is dishonest. It is possible to pay a reasonable fee for loan origination and refinance your mortgage with a wholesale rate. A reasonable origination fee to pay is one percent of your mortgage amount and there are honest mortgage brokers willing to work for that. Sure you’ll have to pay closing costs; however, if you plan on keeping your home refinancing with a wholesale mortgage rate can save you thousands of dollars in the long run.

You can learn more about refinancing your mortgage with a wholesale mortgage rate while avoiding broker and lender junk fees with a free mortgage refinancing DVD. Click the DVD image at the top of this page to order your free copy today.

If you are a homeowner paying on an Adjustable Rate Mortgage, refinancing could help you avoid a financial nightmare. Many homeowners don’t know when their Adjustable Rate Mortgages are scheduled to reset and experience payment shock when their monthly payment goes up by several hundred dollars. Here are several tips to help you manage your Adjustable Rate Mortgage and decide if refinancing is right for you.

Many homeowners use Adjustable Rate Mortgages to purchase their homes because these loans are easier to qualify for and have lower payments, at least in the beginning. These loans frequently come with ultra-low “teaser” interest rates; however, at the end of the introductory period the loan switches to the contract mortgage rate and the payments go up significantly. Homeowners who don’t understand how their contracted mortgage rate works can experience payment shock when their lender starts adjusting the loan.

What is Mortgage Payment Shock?

Imagine waking up one day to a statement from your lender showing that your Adjustable Rate Mortgage has reset and the new monthly payment will be $400 more than you’re currently paying. For many homeowners living paycheck to paycheck this would be a disaster resulting in the eventual loss of the home. Payment shock occurs for a number of reasons; some homeowners don’t understand how their Adjustable Rate Mortgages work or even what their contract interest is.

Benefits of Refinancing Your Adjustable Rate Mortgage

There are a number of benefits from refinancing in addition to locking in your monthly payment amount. If you decide to stick with an Adjustable Rate Mortgage, refinancing could get you a better margin if your credit score has improved. Margin is the amount of markup that’s added your mortgage rate every adjustment cycle; the amount you’ll pay is partially based on your credit score. If you’ve improved your credit rating you could get a lower margin and pay less interest.

Of course the main benefit or refinancing your Adjustable Rate Mortgage with a fixed rate mortgage is having a stable payment amount. When interest rates are on the rise for whatever reason you can expect your mortgage payments to follow. Fixed rate mortgage loans protect you from economic uncertainty and rising mortgage interest rates. If you don’t want to refinance with a fixed rate mortgage you can improve your stability by refinancing with an Adjustable Rate Mortgage with better caps. Caps are safety features that limit how much your payment amount and mortgage rate can rise during any one adjustment and over the lifetime of your mortgage.

Refinancing Can Help You Build Ownership Faster

Refinancing your mortgage with a new loan with a shorter term length allows you to build equity in your home at a much faster rate, meaning that you will pay your mortgage down faster and pay less to your lender in finance payments. The disadvantage of a shorter term length is that your monthly payment will be much higher; however, if your budget can support his payment you can save yourself thousands of dollars in the long run. There are other circumstances where refinancing can raise your payment amount. Borrowing against the equity in your home for instance results in qualifying for a slightly higher mortgage rate and a higher monthly payment. The money you get back can be used for any reason; many homeowners use equity in their homes to consolidate higher interest debts such as credit cards.

Is Mortgage Refinancing Right For You?

There are a number of factors to consider when deciding if mortgage refinancing is right for you depending on your objective for the new loan. Many financial advisors and websites will tell you not to refinance unless your new mortgage rate is at least two percent lower than you’re already paying; however, this so-called “rule of thumb” is bad advance.

Rather than basing your decision to refinance on an arbitrary mortgage percentage rate, it makes more sense to base your decision on how long it takes you to recoup your expenses from refinancing and realize a savings. Here’s why…whenever you take out a mortgage loan you will be required to pay a number of fees and closing costs. If your objective for refinancing is to save money with a lower payment amount you will not realize any savings until you have recouped these expenses.

You can easily calculate how long it will take you to recoup your expenses by dividing the amount of your out of pocket expenses by the amount you will be saving each month on your mortgage payment. This will tell you the number of months you have to realize a savings from the new mortgage. This only works if you are considering refinancing to lower your monthly payment amount. Homeowners refinancing with longer term lengths or borrowing against their homes may never recoup the expenses of refinancing their mortgage loans.

Another factor to consider is the amount of time you plan on keeping your home. If you sell your home before recouping your expenses you will lose money by refinancing. You should not plan on moving prior to the reaching this break-even point for your loan.

Beware Mortgage Broker Fees

Once you’ve decided to go ahead with refinancing your mortgage there are a number of potential pitfalls you’ll need to avoid. These problems include paying unnecessary closing costs, Broker fees and commission based markup of your mortgage interest rate. If you’re not careful a greedy mortgage broker can wipe out any potential savings you stand to realize from refinancing the loan. You can learn more about refinancing your Adjustable Rate Mortgage with a wholesale rate and avoiding unnecessary fees with a free mortgage DVD.

If you’re in the process of refinancing your home mortgage loan, understanding how mortgage rate quotes work will help you recognize a good deal when you find one. In order to comparison shop effectively it is important that you know how loan originators work and how they are compensated. Here are several tips to help you understand rate quotes and find the best deal when refinancing your home mortgage loan.

Your Loan Originator is a Middleman

The first thing you need to understand is that your loan originator does not set your mortgage rate or underwrite your loan. This person is simply a salesperson trying to earn a commission by referring your business to a wholesale lender. Your loan originator could be a mortgage broker or a representative at a brick and mortar company or mortgage website. There are two ways this salesperson is compensated for placing you with a mortgage loan. Understanding these fees will help you avoid being taken advantage of by this person.

Loan Origination Fees vs. Yield Spread Premium

Most mortgage brokers charge an origination fee for their part in arranging your mortgage loan. This fee can range from less than one percent to several percent; however, a reasonable fee to pay for loan origination should not be more than one percent of your loan amount. This is the only fee you can expect your mortgage broker to be upfront with you about; many brokers try and squeeze additional compensation out of your mortgage by marking up your interest rate. This broker added markup is called Yield Spread Premium.

Beware Broker Yield Spread Premium

The second method of mortgage broker compensation you need to be aware of is known as Yield Spread Premium. The “spread” is simply the difference between the mortgage rate you were approved and the rate quoted to you by your mortgage broker. Your broker marks up the interest rate because the wholesale lender behind your mortgage pays them a bonus of one percent for every .25 percent you agree to overpay. This “kickback” for overcharging you is paid on top of the origination fee you’re already paying for the broker’s services. Agreeing to pay Yield Spread Premium when refinancing your mortgage will double, often triple the compensation your broker receives for arranging your mortgage.

Many brokers tell you not to worry about Yield Spread Premium because the fee isn’t coming out of your pocket. This is a sure sign of a dishonest mortgage broker. Yield Spread Premium is paid because you’ve agreed to overpay for you loan. Anyone that tells you differently is lying.

Understanding Mortgage Rate Quotes

Your mortgage broker will always try and place you with the mortgage that makes them the largest commission. Once your mortgage broker sizes you up much like a used car salesman, they prepare a quoted based on how much they think you’ll agree to pay.

You an be certain the rate quote you receive includes Yield Spread Premium and that your Good Faith Estimate will have an origination fee in excess of one percent. Your job is to find an honest mortgage broker (they do exist) that will work for a reasonable origination fee without charging you Yield Spread Premium.

How to Negotiate with a Mortgage Broker

Shopping for a mortgage broker is a lot like shopping for a used car. Start by being direct and upfront about your expectations for the mortgage. Tell your potential mortgage brokers that you understand how Yield Spread Premium works and will not accept any loan offer that includes the markup. Tell them that you will pay a reasonable amount for the origination fee and try to negotiate this fee to one percent or less if possible of your mortgage amount.

Beware Pressure Sales Tactics and Intimidation

Never let a mortgage broker pressure you into taking a mortgage that isn’t right for your situation. If you feel pressure or are uncomfortable with your mortgage broker simply thank them for their time and move on to the next. Mortgage brokers are a dime a dozen in most states and finding the right person to originate your mortgage could be just a phone call away.

You can learn more about refinancing with a wholesale mortgage rate without paying too much with free mortgage videos. The video tutorial is divided into six sections and walks you step-by-step through the process of requesting rate quotes, comparison shopping, and refinancing with a wholesale mortgage rate. Request your videos today; they’re free with no obligation.

The majority of confusion homeowners have when refinancing their mortgages comes from closing costs. Many homeowners simply don’t know which closing costs are legitimate and what reasonable third party charges are. When refinancing your mortgage there are basically three ways to pay your closing costs.

The most common and most expensive method for paying your mortgage closing costs is to roll them into your loan balance. This method not only raises your principle balance but the amount you pay for financing charges over the entire duration of your loan. Another common and misleading ploy lenders use are the so called “no fee” mortgage loans. These are popular among lenders like Bank of America who brag about their “no closing cost” or “flat fee” mortgage loans.

The problem with no fee mortgage loans is that are truly no free lunches when it comes to loans. Mortgage lenders never waive their fees, the simply offset them from another source. This offset almost always comes in the form of a higher mortgage rate. Why pay a higher interest rate for the entire duration of your loan when simply paying these costs will save you ten fold over the lifetime of your loan? Think of your closing costs as an investment that will bring you a return in the form of lower finance charges for the entire duration of your mortgage.

When you’re paying closing costs out of your pocket it’s important to make sure the person originating your loan doesn’t markup up your interest rate for their commission. Many brokers allow homeowners to use Yield Spread Premium to pay their closing costs. Yield Spread Premium is the “retail” markup of your interest rate for a commission from the wholesale lender. Rather than pocket this cash a good mortgage broker will let you use it to pay your settlement charges.

Dishonest mortgage brokers keep this money even when the closing costs are coming out of your own pocket, often without telling you. How can you avoid paying Yield Spread Premium when refinancing your mortgage? Homeowners who simply learn to recognize this unnecessary can avoid paying it. You can learn more about refinancing your mortgage without paying too much with our free mortgage toolkit.