Refinance Home Mortgage Guide

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.

You’ve probably been hearing about the credit crisis in the mortgage industry recently and a number of people have been asking me what’s really happening. While it’s true the meltdown of the sub-prime or bad credit mortgage industry is affecting conventional mortgage lenders, the impact is not as bad as the gloom and doom you’re hearing in the news.

Who is the credit crisis affecting?

Homeowners that purchased their homes with loans not appropriate for their needs or financial situation and those with bad credit are feeling pinched by the crisis. This includes homeowners that purchased their homes with risky interest-only and option Adjustable Rate Mortgages (ARM) that are scheduled soon to reset. Many of these homeowners used these risky loans because they have low credit scores or are unable to sufficiently document their income and assets for a conventional mortgage loan. Homeowners with credit scores that are lower than 620 in need of jumbo or stated income loans will find getting approved very difficult if not impossible in the current climate.

Who is the crisis not affecting?

Homeowners with good credit in need of conforming mortgage loans (loans less than the $417,000 limit set by Fannie Mae) are not going to have any trouble refinancing their mortgage loans. The Federal Reserve recently lowered short term interest rates because of the crisis and mortgage rates are still very low. If you are in need of a stated income mortgage loans these loans are gradually becoming available; however, you will need to meet the credit/asset guidelines in order to qualify.

Mortgage brokers and lenders are feeling the pinch and should be eager to make deals; you will need to be careful to avoid junk fees and the unnecessary markup of your mortgage interest rate known as Yield Spread Premium.

Beware Junk Fees and Retail Markup

There are a number of junk fees listed on your Good Faith Estimate and HUD-1 statement you need to avoid when refinancing. Anything you find on these documents that resembles an application fee, lock fee, processing fee, or a courier fee is a garbage fee you should simply refuse to pay. The interest rate you are quoted when applying for a mortgage is typically a retail mortgage rate that includes your mortgage broker’s markup. This markup of your mortgage interest rate serves no purpose other than to give your mortgage broker a commission. Because you’re already paying an origination fee for your mortgage broker’s services this markup often doubles or triples your broker’s commission.

When questioning mortgage brokers about this markup known as Yield Spread Premium many brokers become defensive even angry. Your mortgage broker might tell you not to worry about this fee because it’s coming from the lender’s pocket; however, the reason the lender pays this fee is because you’re agreeing to pay a higher mortgage rate than you need to. You can learn more about avoiding Yield Spread Premium and other junk fees when refinancing your mortgage by registering for this free mortgage toolkit.

Unless you’ve been living under a rock you’ve probably heard about the recent credit crisis in the United States. Spurned by the collapse of the sub-prime or bad credit mortgage industry, and depending on which news channel you’ve been watching, you might have heard that there is no money for mortgage loans, that credit card companies are cutting people off, and oh yes…forget about that car loan. While it’s true that the sub-prime mortgage industry has imploded and that bad credit lenders are filing for bankruptcy right and left, regrettably laying people off, the homeowners affected by this crisis are mainly those with poor credit.

You may have also heard that European investors downgraded the credit ratings of US mortgage companies making it more difficult for these companies to fund their loans. Again, the companies affected here are sub-prime mortgage lenders. While it’s true that Europeans perceive Americans as fat, stupid, gun-toting criminals that don’t pay their bills (just ask Jeremy Clarkson, host of Top Gear…he’ll tell you) the majority of what you’re hearing in the news can be attributed to these sub-prime mortgage lenders that you see dropping like flies. Americans are certainly not stupid and most of us do pay our bills on time. As for the rest…well, I digress.

The mortgage industry is still alive and kicking in the United States; if you are a homeowner with good credit in need of a mortgage you can find the funding you need. Mortgage lenders as a rule are greedy bastards, so you can expect to see them exploit this “crisis” to make a buck. Headline News reported this morning that mortgage lenders are raising interest rates and imposing “strict” loan terms to “keep pace with the current economic environment.” This is corporate speak for taking advantage of people to make a buck.

This “credit crisis” or shall we say excuse for raising mortgage rates and imposing unfavorable loan terms on the hard-working American homeowner, is why doing your homework and comparison shopping is critical if you are in the market for a new loan or to refinance your existing mortgage. Again, if you have poor credit or a jumbo mortgage you’ll probably have to wait for blue skies to come again; however, if you have good credit and a chunk of equity in your home, refinancing with good rates and loan conditions is still possible.

Yield Spread Premium hasn’t gone away and lenders will still try and sell you an outrageous mortgage to improve their bottom line. This can be avoided by learning how to recognize their greedy bag of tricks, starting with the unnecessary markup of your mortgage interest rate. You can learn more about refinancing your mortgage without being taken advantage of with my video toolkit. For free access to the videos, training materials, and support staff click on the DVD image you see at the top of this page. There is no obligation to you now or in the future…really, no strings attached.

If you’re in a pinch to find a new mortgage you can save yourself many future headaches and thousands of dollars by doing your homework and researching loan offers. Many homeowners with Adjustable Rate Mortgages are feeling the pinch as lenders raise their payments in line with current interest rates. If you used one of these risky interest-only or option Adjustable Rate Mortgage to purchase your home, refinancing to a conventional fixed interest rate loan could give you financial peace of mind.

Many homeowners make the mistake of accepting the first favorable mortgage offer that they’re approved based on the interest rate alone. When you comparison shop for new mortgage make sure you compare all aspects of the loan offers, including closing costs. Also, because mortgage loans are sold on a commission basis, you need to avoid paying Yield Spread Premium. Yield Spread Premium is the markup of your mortgage interest rate by the loan originator and is one of the most important and frequently overlooked aspects of your mortgage loan.

Mortgage loans are retail products just like cars. There is a retail market where loans are sold by mortgage companies and brokers for wholesale lenders. Just like a car dealership, your mortgage company or broker marks your loan up to boost their profits. The problem with this markup is that you’re already paying origination fees for their services; paying Yield Spread Premium when mortgage refinancing is like paying double for your mortgage.

Here’s an example of how a typical mortgage transaction works. The mortgage company or broker that processes your application receives a specific mortgage rate from the wholesale lender that approves your loan. This is the actual interest rate you qualified for based on your credit and the financial details of your application. Your loan originator marks this interest rate up because the wholesale lender pays them a bonus of 1% of your loan amount for each .25% you agree to pay beyond what you qualified. This is an incentive to overcharge you. Stay tuned for Part 2 of this article where you’ll learn how you can avoid paying this unnecessary markup of your mortgage interest rate.