Mortgage Refinance Guide

When it comes to getting your home loan, nearly everyone wants to get the lowest mortgage rate possible. The question is how to do this…the answer doesn’t have to be as confusing as it might seem.

The first step to getting the best mortgage rates possible is for you to understand how mortgage rates are determined and where you stand based on your credit history and credit score.

If you currently have a mortgage loan, have you been hearing rates other people qualified for or have looked in the newspaper and seen low rates that make yours look terrible? Are you wondering how some people can secure a lower rate? Perhaps you are looking to get a mortgage and you want to have the lowest rate possible but you don’t know how to do it.

Your first step is to learn all that you can about mortgage rates and how the rate is determined. One of the most important factors in your mortgage rate is your credit rating. Most loan companies and banks will use your FICO score (FICO is short for the Fair Isaac Corporation) to determine what rates you will be charged and if you will even be approved for the loan.

However, this doesn’t mean that you have to have perfect credit to get a good mortgage rate. The truth of the matter is the better your FICO score, the better your chance of a good mortgage rate but there are other ways you can try to lower your rates even if you have less than perfect credit.

First, it is essential you pay any and all of your existing bills on time and as soon as possible. Avoiding delayed payments will help add points to your credit score. It can also be helpful to pay more than the minimum amount on long term balances. Paying over the amount due shows that you want to pay off your debts and also helps improve your score over time. You should also avoid applying for new credit which can lower your score with each new credit check. These simple strategies combined can help you get the lowest mortgage rates possible for you.

Many homeowners rely on the Good Faith Estimate when comparison shopping for a mortgage loan. While it’s true that the Good Faith Estimate gives you more information than the Annual Percentage Rate (APR) there are important limitations you need to be aware of before choosing a lender based on this document. Here are several tips to help you choose the best loan offer when refinancing your mortgage.

How do you really know which mortgage is better when refinancing? Do you choose the loan with the lowest mortgage rate regardless of closing costs and other fees? Do you go with a lender claiming to offer no fee mortgage refinancing and hope that you’re getting a competitive mortgage rate? When it comes to refinancing your home the answers to these questions are not black and white but depend on your individual financial situation. In order to make sense of your options when refinancing it helps to understand how loan originators and mortgage lenders make their money.

The first thing you need to know is that mortgage loans are sold on a commission basis. Your loan officer or broker is not interested in giving you a fair and accurate mortgage quote whatsoever; this person is only interested in selling you the loan that nets them the largest commission. To accomplish this goal the Good Faith Estimate that they give you may provide very little truth about the actual costs involved with your loan.

Wait a minute, isn’t the Good Faith Estimate required by law? Mortgage lenders are required by law to provide you a copy of the Good Faith Estimate; however, this document is merely an “estimate” given in “good faith.” We all know that estimates have a nasty habit of changing before everything is said and done. Another problem with your Good Faith Estimate is that your loan officer or broker knows that most people have no idea what wholesale mortgage rates are, or even how they work. Because this person is paid by commission it’s not in their best interest to give you a good mortgage rate. The more you pay when refinancing, the more money they stand to make.

Because your Good Faith Estimate is just an estimate, like many other salespeople, loan officers and mortgage brokers tend to “stretch the truth” in order to get a sale. I say stretch the truth; however, in most cases this means flat out lie. These people know the wholesale rate that your lender approved you; however, they mark this mortgage rate up to get a commission from the lender. This markup of your mortgage rate is frequently omitted from the Good Faith Estimate entirely.

This is why most mortgage quotes you receive are anything but accurate.

Did you know that an honest mortgage broker needs 17 pieces of information before they can quote you an accurate mortgage rate? If your loan officer or broker is not asking you for the following information they are just feeding you a line to get your application processed.

Here is the information need to accurately quote a mortgage interest rate:

1. Loan Type: Mortgage Refinance or New Purchase
2. How Much Are You Borrowing?
3. If Purchasing, Do You Have a Down Payment?
4. What is Your credit score?
5. What Type of Property Do You Have?
6. Will You Be Taking Cash Back?
7. What is Your Employment Status?
8. What is Your Property Address?
9. Is Anything Being Paid in Escrow?
10. What is Your Home’s Value or Purchase Price?
11. Is This Your Primary Residence?
12. What Type of Loan?
13. What Term Length?
14. How Long Have You Been Employed?
15. Do You Have a Bankruptcy?
16. Has Your Property Been Listed For Sale?
17. Are You a US citizen?

If you receive rate quotes without providing this information you are getting a bogus quote. The person quoting you has no intention of honoring the rate they are giving you. You can save yourself a lot of money and future headaches by avoiding this person all together.

The good news is that you can find honest mortgage brokers willing to work for a reasonable origination fee without marking up your mortgage rate. You can learn more about choosing the best mortgage offer for your situation when refinancing, including expensive pitfalls to avoid with a free mortgage refinancing DVD.

Most homeowners focus solely on finding the lowest mortgage rate when refinancing their home loans. While qualifying for the lowest refinancing mortgage rate will get you a lower payment and save you money, there are a number of other fees you should not overlook. Here are several tips to help you get the best refinancing mortgage rate without overpaying lender junk fees.

If you are looking at refinancing mortgage rates online, you’ll want to be careful to avoid computerized loan origination fees. This fee is often tacked onto your loan by the mortgage website you visited to fill out a contact form. The most notorious example of the computerized loan origination fee gone wrong is Lending Tree.

When Lenders Compete, You Lose

Mortgage lead generation sites like lending tree actually have nothing to do with mortgage loans whatsoever. Surprising? These websites have huge advertising budgets and put up a flashy website to trick homeowners into filling out their contact forms without reading the fine print. Check out the fine print on Lending Tree’s website; you’ll find it under Licenses and Disclosures.

Read this disclosure statement carefully and you’ll find that Lending Tree receives a fee of up to $1,300 for their part in “arranging” your loan. Lending Tree simply sells your information to the highest bidder on it’s “network” of mortgage lenders and collects their fee. This is a fee that appears on your Good Faith Estimate and is paid out of your pocket just because you filled out a contact form on Lending Tree’s website. The bottom line when shopping for the lowest refinancing mortgage rate online is to always read the fine print.

Avoiding YSP Can Get You A Wholesale Mortgage Rate

Another problem with finding the best refinancing mortgage rate is that most homeowners don’t know their interest rate has been marked up to give the broker a commission. Mortgage loans are considered retail products and the interest rate is what makes your mortgage “retail.” When you were approved for your refinancing mortgage rate your loan originator was given a specific interest rate for your loan; however, this person overcharges you to get a bonus form that lender.

That’s right, for every quarter percent you agree to overpay for your refinancing mortgage rate, that person gets a bonus of one percent of your mortgage amount from the lender. This bonus is paid in addition to the fees you’re already paying for their services. How can you avoid this ridiculous markup of your refinancing mortgage rate?

The difference between the refinancing mortgage rate you were approved and the one you close with is called Yield Spread Premium or YSP. If you’re upfront with your mortgage broker when comparison shopping and tell them you understand how YSP works and will not tolerate this lender paid compensation, you can negotiate for a wholesale interest rate. You can learn more about finding the perfect refinancing mortgage rate without paying lender junk fees with our free mortgage toolkit. Sign up today by clicking the DVD image at the top of this page.

If you are considering mortgage refinancing, there are several steps you can take to qualify for a better mortgage rate. Many people will tell you comparison shopping is the most important aspect of qualifying for a great rate; however, comparison shopping is only one aspect of the equation. Here are several tips to help you qualify for a better interest rate when mortgage refinancing.

I. Boost Your credit score

Mortgage lenders use your credit score to determine how much of a risk you are for a mortgage loan. Your credit score is derived from your credit reports maintained by the three credit reporting agencies: Equifax, Experian, and Trans Union. The first step in improving your credit score is to request copies of your credit reports and carefully check for any errors or negative information.

Your credit score relies heavily on your payment history; 35% is based solely on making on time payments to your existing creditors. If you have credit problems in your past be upfront with your lender and explain why the payments were late. Any documentation you can provide to support your explanation will help your cause.

II. Consider Buying Your Mortgage Rate Down By Paying Points

Most mortgage lenders will lower your mortgage rate in exchange for points. A “point” is one percent of your mortgage rate in the form of pre-paid interest due at closing. The more points you pay upfront, the more your interest rate goes down. When deciding if you will benefit from paying points determine how long it will take you to recoup the expense from the amount you are saving with a lower mortgage payment. This will tell you the “break even point” and if paying this fee makes sense for you.

III. Avoid Paying Yield Spread Premium

Mortgage companies mark up your mortgage rate because the wholesale lender pays them a bonus for overcharging you. For every quarter percent you agree to overpay the lender pays them one percent of your loan amount in addition to the origination points you already pay. How can you avoid paying this retail markup of your interest rate? Ask your mortgage company to see the mortgage rate guaranteed by the wholesale lender and tell them you will not pay any retail markup of the interest rate from the wholesale lender. If the mortgage company refuses to show you the rate sheet find another mortgage company that will.

You can learn more about your mortgage refinancing options, including costly mistakes to avoid by registering for our free, six part video tutorial.