Home Mortgage Refinancing Guide

Most homeowners know very little about how mortgage brokers are compensated for their work.

They assume that the origination fee listed on their Good Faith Estimate is the broker’s commission for the home loan; however, what you don’t know about mortgage broker fees could cost you a lot of money.

Here are several tips and questions to ask potential brokers to help you find the right professional to refinance your home loan.

The mortgage industry in the United States has a dirty little secret known as Yield Spread Premium. Mortgage brokers are very good at explaining away this fee as “lender paid” compensation; in other words it’s not coming out of your pocket so don’t worry about it. The problem with Yield Spread Premium, which is a percentage of your loan amount created when the broker locks and closes your home loan with an above market interest rate, is that it really is costing you money…thousands of dollars in unnecessary finance charges every year that you’ll pay as long as you keep that loan

Yield Spread Premium is a Lie

Your mortgage broker pockets a commission from the lender for marking up your mortgage interest rate. Sure this is listed on the HUD-1 statement as a “broker rebate” but if your broker doesn’t tell you they’ve marked up your interest rate for cash it’s still a lie of omission. Your mortgage broker receives one percent of your loan amount for every quarter percent they overcharge you. This “rebate” is paid in addition to any origination fees or mortgage broker fees you’re already paying.

Mortgage Refinancing Done Right

Another problem faced by the majority of homeowners refinancing their mortgages is that they don’t know what a good deal looks like. The ideal transaction between a homeowner and a mortgage broker is a loan with zero Yield Spread Premium, no garbage fees, and a one percent origination fee. Think that this sounds too good to be true? It’s not if you know how to find the right mortgage broker to originate your loan.

Questions to Ask Your Mortgage Broker

Before you agree to anything with a mortgage broker there are several pointed questions you need to be asking:

Honest mortgage brokers willing to work for a one point origination fee do exist and finding a broker like this will save you thousands of dollars and countless headaches when refinancing your home. You can learn more about getting a wholesale mortgage rate while avoiding lender junk fees by registering for my free mortgage video tutorial.

Your monthly mortgage payment amount is determined by the amount you borrowed and the mortgage you qualified. Mortgage rates are currently at their lowest levels since 2005; if your financial situation has changed since you purchased your home you could significantly lower your payment with a lower mortgage rate. Here are several tips to help you decide if this is the right time to refinance your home loan.

Wholesale Mortgages Rates

If you are a homeowner with good credit the current wholesale mortgage rate is 5.5 percent. Refinancing your mortgage with wholesale rates can be tricky as most homeowners don’t understand how mortgage rates are quoted. The rate quotes your receive online and from your mortgage broker are actually “retail” mortgage rates and can be as much as a half percent to a full percent higher than the going wholesale rate.

What Makes Mortgage Rates Retail?

Mortgage brokers are basically commission based salespeople. Your broker is compensated for their work in two ways; you will pay an origination fee for their services and the lender pays a “rebate” to the broker for closing your loan. A reasonable fee to pay for loan origination is one point, or one percent of your loan amount. If you can get away paying less than one percent you’re doing well, but what about the broker rebate paid by the lender? Should you be concerned about this fee since it’s not coming out of your pocket?

The short answer is yes. You should be very concerned about this fee not because the lender is paying it, but why the lender is paying. Broker rebates are paid for one reason and one reason only. This rebate is a reward for closing loans with above market mortgage rates. That’s right; your mortgage broker receives a bonus form the lender for overcharging you. In the industry this “reward” is called Yield Spread Premium and could wind up costing you thousands of dollars in unnecessary finance charges.

The Mortgage Industry Has a Dirty Little Secret…

Here’s an example to illustrate how the broker rebate works. Suppose you refinance your home for $300,000 and your broker tells you that you qualify for a 6 percent mortgage rate. You agree to pay one point for loan origination which is a perfectly reasonable fee to pay the mortgage broker. This fee amounts to $3,000 paid out of your pocket at closing. But what is your mortgage broker not telling you?

Today’s wholesale mortgage rate is 5.5%. If you agree to a 6.0% mortgage rate that means the loan has .5% Yield Spread Premium. Mortgage lenders pay one point for every quarter percent the broker overcharges you. In this example the broker receives an additional $6,000 on top of the $3,000 you’re already paying. That’s $9,000 for a few hours work and that’s only half the problem.

The real stink of Yield Spread Premium comes form the fact the most brokers will never admit what they’re doing with your mortgage rate and never properly disclose this fee. Most mortgage brokers leave it off the Good Faith Estimate entirety, give you a bogus rate lock confirmation instead of the one from your lender and if you happen to catch the rebate on your HUD-1 statement explain the fee away by saying “It’s not coming out of your pocket, don’t worry about it.

What’s Wrong With Yield Spread Premium?

By accepting an above market mortgage rate your payments will be higher than they need be and you’ll be wasting money on unnecessary finance charges. Because this fee is never properly disclosed your mortgage broker is all but lying to you about the loan and taking money out of your pocket. Is this the mortgage you thought you were getting when the broker quoted you a six percent interest rate?

The good news is that you can avoid mortgage broker rebates when refinancing. There are honest mortgage brokers out there that will work for the origination fee alone without marking up your mortgage rate; you just have to find one. A good place to start is the Upfront Mortgage Brokers Association; members of this association agree to conduct their business following certain ethical and professional standards. Not every State has members however; if your State does not you can still find honest mortgage brokers by doing your homework and shopping for the right broker.

You can learn more about refinancing your mortgage with a wholesale mortgage rate by registering for a free DVD. Register today, this mortgage DVD is yours free with no obligation.

The Internet is an excellent tool for refinancing your home mortgage and can save you thousands of dollars; however, you need to know that big named mortgage companies run scams online every day. These are companies you see advertising on television and if you’re not careful you could overpay thousands of dollars for your next mortgage. Here are several tips to help you protect yourself when refinancing your home loan on the Internet.

When Lenders Compete You Lose

Have you seen those commercials on television about making banks compete for your business when taking out a mortgage? It sounds great…mortgage loans are a fiercely competitive industry and anything that gets lenders competing for your business can’t be a bad thing right? Wrong!

What is Lending Tree Really?

The first thing you need to know about Lending Tree is that they are not a mortgage lender and actually have nothing to do with mortgage loans whatsoever. Lending Tree and many of the other big named sites you see on the Internet are simply lead generation sites. They put up a flashy website, advertise on television, and sell your information to the four highest bidders. Lenders are competing for your personal information, not your business. Once these lenders have your information you will start receiving phone calls and emails soliciting mortgage loans.

The fact that you have lenders calling you isn’t really the problem with lending tree. The real problem comes from the fee they slip into your loan without your knowledge. Lending Tree for example tells you that they do not charge you a fee for using their service; however, the fine print says otherwise.

Always Read The Licenses & Disclosure Pages

If you read the fine print on Lending Tree’s Access and Disclosure statement you will find that while Lending Tree Claims they are not charging you a fee for their services, you will have a charge on your Good Faith Estimate that will be paid to them by the lender. Because you’re paying the lender the fee for Lending Tree they claim their service is free to use; however, the money still comes out of your pocket even if it’s being paid by the lender. This is only the tip of the deceptive advertising.

Reading further on this Licenses and Disclosure page reveals not only will you be charged a fee for filling out the form on Lending Tree’s website but this fee will be as much as $1,300. That’s $1,300 you’ll have to pay just for filling out your name and address on Lending Tree’s form!

Not only is this deceptive advertising on Lending Tree’s part but this is a ridicules fee to charge someone for selling their information to the highest bidder. Lending Tree had a class action lawsuit filed in 2006 for unfair business practices and deceptive advertising. Is this a company you want involved with your next mortgage loan? You can learn more about protecting yourself from predatory lending practices when refinancing and ways to save money in the process register for a free mortgage DVD.

If you purchased your home with an option adjustable rate mortgage because you needed the lowest payment possible you should be very concerned about all the trouble brewing in the mortgage industry. When your option ARM begins resetting coupled with the declining values of homes across the country it could become extremely difficult for you to keep up with rising mortgage payments. Here are several tips to help you decide if refinancing your option adjustable rate mortgage is right for you.

Payment Option Adjustable Rate Mortgages

Pay option mortgage loans are relatively new and offer a great deal of flexibility for the savvy homeowner or Real Estate investor. The problem is that many people who purchased homes with these loans don’t understand how they work and blindly go on paying the minimum amount due each month until the lender recasts their loan and find out that foreclosure is a short 120 days away.

If you’re reading this and are unfamiliar with payment option mortgages, they are a very flexible mortgage with several different payment options. Homeowners with these loans can make payments on any given month based on the following options:

15 year or 30 year amortization
Interest Only
Optional Minimum Payment

The first option is a fully-amortized payment meaning that portion is applied to your loan balance after the interest is paid. If you choose to make the interest only payment you will only pay the finance charges due each month without paying down your loan balance. The “optional minimum payment” is what gets homeowners in trouble. This payment does not cover all of the interest due in a month. The unpaid portion is added to the loan balance every month. This means that your mortgage is actually growing over time and when it reaches a certain threshold, usually 125% of your loan amount, the lender will “recast” your loan.

Recasting means that the mortgage is converted to a standard adjustable rate mortgage amortized for the time remaining in your loan contract. For many homeowners this results in payment shock that they are unable to recover from and ultimately lose their homes.

Are You Running Out of Options?

If you are a homeowner who has been making the minimum payment month in and month out you should refinance your loan immediately. Your option mortgage is a ticking time bomb that could cost your home. The payment option mortgage problem is not limited to homeowners with poor credit; industry analysts estimate that there are 580 billion dollars in outstanding option loans from 2005 and 2006 alone. Analysts expect many of these loans to end in foreclosure due to declining home values.

Protect Your Home

How can you protect yourself from mortgage payment shock with your option mortgage? Use a mortgage calculator to predict your monthly payment when your loan resets. Read your mortgage contract and find out what the lender’s margin is when calculating your future payment amounts. If you find that you will not be able to afford the payments after the reset consider refinancing with a hybrid adjustable rate mortgage to keep your payments low and lock in your mortgage rate for the time being.

You can learn more about your mortgage refinancing options; including costly pitfalls to avoid when dealing with mortgage brokers with a free mortgage DVD. Request yours today.

If you are a homeowner considering a new mortgage to refinance your existing loan, the process can be intimidating. No one wants to pay too much for anything and mortgage refinancing is no exception. You may have arrived at this site searching for “mortgage refinance information” and you’ve come to the right place. Here are several tips to help you find the perfect mortgage when refinancing.

How to Get Started Refinancing Your Mortgage

The first thing you need to do before shopping for a new lender is to take stock of your credit Your credit score largely determines the interest rate you will qualify for when refinancing, and if you have mistakes in your credit reports it will cost you. credit reports are maintained by three separate credit reporting agencies and they’re not very good at sharing information. Make sure you go over all three reports with a fine-tooth comb and dispute any errors you find with each credit agency.

The three credit agencies responsible for maintaining your records are Equifax, Experian, and Trans Union. There are hundreds of sites out there offering free credit reports and scores if you purchase their credit monitoring service. Don’t fall for these scams; recent legislation in the United States requires each credit agency to provide you with one free copy of your credit file every year. You won’t get a credit score using this service; however, your credit score is not necessary for refinancing. If you really want to know the score you can find out from the mortgage lender. Print out all three copies of your credit report by visiting the website annualcreditreport.com.

How to Shop for a New Mortgage When Refinancing

Once you’re certain that your credit reports are error free you are ready to begin comparison shopping mortgage offers. There are several different types of mortgage lenders, and types of lenders you need to avoid. The basic lender types you need to be aware of include wholesale mortgage lenders, banks, and correspondent lenders also known as broker-banks.

Mortgage Refinance Information

The Real Estate Settlement Procedures Act, RESPA for short, is legislation in the United States that protects homeowners by requiring mortgage lenders to disclose their markup and profit margins on your loan. You may already be familiar with the Truth in Lending laws that require lenders to disclose the cost of borrowing as an Annual Percentage Rate (APR). The problem with APR is that while lenders are required to disclose this figure, there is no standardized method of calculating the percentage and every lender calculates their APR differently. This lack of standardized calculating makes the Annual Percentage Rate worthless for comparing loan offers.

The Real Estate Settlement Procedures Act makes up for the shortcomings of the Annual Percentage Rate, except that banks and broker-banks are exempt from this legislation. The Banking Lobby spent millions of dollars lobbying congress so that your bank doesn’t have to play by the same rules as other mortgage lenders. Banks are not required to disclose any of the markup they add to your mortgage interest rate; if you refinance your mortgage the bank is the only one that knows how much you’ll overpay.

As for correspondent lenders and broker-banks, these are simply banks pretending to be mortgage brokers. How can you tell if your mortgage broker is not a broker-bank? Ask if the broker closes in the name of the wholesale lender or in the name of their own company. If the answer you get is the loans are closed in their company’s name you know that you’re dealing with a broker bank. Never refinance your mortgage with a bank, broker-bank, or correspondent lender.

Mortgage Refinance Information and Yield Spread Premium

Now that you know a wholesale lender is the way to go when refinancing your mortgage, how do you find a wholesale lender to approve your loan? The average homeowner does not have access to wholesale mortgage rates so we’ll need to rely on a mortgage broker to access them for us. Refinancing your mortgage with a broker is a lot like buying a used car. Most mortgage brokers have the used car salesman mentality when selling you a mortgage loan; brokers try and explain away their markup of your mortgage interest rate as compensation paid by the lender.

This markup of your mortgage interest rate by the broker is called Yield Spread Premium and is responsible for most homeowners unknowingly overpaying when refinancing. Yield Spread Premium is simply the difference between the mortgage rate your wholesale lender approves you and the interest rate you close with after the broker marks it up. Mortgage brokers charge you Yield Spread Premium because the wholesale lender pays them a bonus of one percent of your loan amount for every quarter percent you agree to overpay. Yield Spread Premium is nothing more than an incentive for overcharging you and is a topic of heated debate in Congress.

The good news for you is that you can avoid this unnecessary markup of your mortgage interest rate. By learning how to recognize Yield Spread Premium on your Good Faith Estimate and HUD-1 statement you can avoid paying this markup. You can learn more about refinancing with a wholesale mortgage rate and avoiding Yield Spread Premium with my free mortgage video tutorial. You can register for the tutorial by clicking the DVD image at the top of this page; the videos are free and there is no obligation whatsoever.