Refinance Home Mortgage Guide

Mortgage rate locks are supposed to protect you from rising interest rates while your loan originator prepares the documents necessary to close on your loan. What happens when your mortgage rate lock breaks? Broken locks occur when you aren’t able to close before your designated lock period expires. Ones your lock breaks the wholesale lender that approved your loan is no longer obligated to honor the mortgage rate you were approved.

What happens with the lender when you haven’t closed when your lock expires? The broken lock creates a problem for everyone involved. It’s more work for the broker, although some will argue they don’t do enough to warrant their commissions, and the lender has a problem because they’ve earmarked funds for your loan. This money is referred to as “hedged” and is budgeted to fund your loan when you close. If you miss your deadline for closing the lender is out the money they paid to earmark the hedge for your loan. This is why your interest rate goes up when you break your lock.

Suppose you’re refinancing your mortgage at six percent and the broker locked your interest rate for thirty days. You miss the deadline for closing and mortgage interest rates have gone up to seven percent. Even if mortgage rates had dropped you’d still be stuck with the higher of the two rates at six percent if you pursue the loan. If you anticipate problems when refinancing your loan ask for a longer lock period…and stick to it.

What If You Haven’t Locked Yet?

If your loan originator hasn’t locked your mortgage rate you have what’s called a floating interest rate. This is the complete opposite of being locked and your rate will change with market conditions. If mortgage rates go down prior to locking you’ll get a better rate; however, there are no protections in place for you if mortgage rates go up. If you’re in the process of refinancing and haven’t locked in your interest rate in writing, you’re taking a gamble with your loan. For most people the gamble of a lower rate is not worth the risk; have your loan originator lock in your rate, in writing, as soon as possible.

How Soon Can You Lock Your Interest Rate?

When you’re refinancing your mortgage you can lock in the interest rate at any time. If you’re satisfied with the interest rate your mortgage broker quotes you and are certain that it does not include unnecessary markup, ask your broker to lock as soon as possible. Once you’ve locked in your best mortgage rate make sure you return all documents and requests for information in a timely manner to prevent breaking your lock. You can learn more about refinancing your loan without paying too much by registering for our free mortgage toolkit; get started today by clicking the DVD at the top of this page.

If you’re in the market for a new home loan and looking for mortgage refinancing company, there are several things you need to know before applying. The most important thing you need to know about mortgage companies is that they are all retail outlets for home loans. What this means is that the mortgage company you choose is simply reselling mortgage loans for a wholesale lender.

What Makes Your Mortgage Retail?

Many homeowners don’t realize mortgage loans are retail products. What makes the mortgage “retail” is the interest rate. Mortgage companies and brokers mark up wholesale interest rates to get a bonus form the lender. This “lender paid compensation” is called Yield Spread Premium and results in paying above market interest rates when refinancing your mortgage.

Why is Yield Spread Premium Bad?

The reason that agreeing to pay Yield Spread Premium when refinancing is a bad thing is that you’re already paying a perfectly reasonable origination fee for your mortgage company’s service. Lender paid compensation on your loan is paid as a reward for overcharging you. This is why agreeing to pay any amount of Yield Spread Premium should be avoided completely.

Here’s an example of the retail markup a mortgage refinancing company adds to your home loan. Suppose a homeowner refinancing their mortgage with a local mortgage company applies for $315,000. The mortgage company tells them they qualify for a 7.5% interest rate and charges them 1.0% of the loan amount or $3,150 for the origination fee. What this homeowner doesn’t know is that the wholesale mortgage company approved them for a 7.0% mortgage rate and their mortgage company is overcharging them. Your mortgage company will probably never admit to marking up your mortgage interest rate. If you know what to look for you can often find the markup in your Good Faith Estimate or on the HUD-1 settlement statement.

Why Charge Yield Spread Premium?

Mortgage refinancing companies can double, even triple their profit margins by overcharging you. They’re legally required to disclose their markup; however, they all have clever ways of disguising retail markup on your Good Faith Estimate and HUD-1. Wholesale lenders know that mortgage loans with higher than market interest rates bring in a premium profit when the loan is sold on the secondary market.

Fortunately for you, homeowners who understand how Yield Spread Premium inflates their interest rate can negotiate with mortgage refinancing companies to avoid paying the markup. Remember you’re already paying a perfectly reasonable origination fee for your mortgage companies services, any markup of your mortgage interest rate is not only completely unnecessary but is taking advantage of you. To learn more about choosing the best mortgage refinancing company for your situation without overpaying for your new loan register for my free video toolkit. You can find links for signing up at the top and bottom of this page.