Mortgage Refinance Guide

If you are considering refinancing your mortgage with a nationwide home mortgage loan company, there are several things you need to know about the junk fees you’ll be paying. Nationwide mortgage companies like Countrywide are notorious for overcharging and taking advantage of their borrowers. Here are several tips to help you avoid paying too much for your next mortgage loan.

Nationwide Home Mortgage Loan Junk Fees

If you’re using the Internet for your mortgage search you’ll need to watch out for “Computerized Loan Origination Fees.” These are fees passed on to you by a third party website such as Lending Tree for simply filling out a form on their website. This fee is frequently buried in the fine print and if you’re not careful you could be out of pocket for as much as $1300 unnecessarily. How does mortgage scam work?

Computerized loan origination fees are charged by websites engaged in lead generation. Lending Tree is one of the most notorious lead generation sites and had a class action law suite pending from 2006 for unfair business practices. These websites like lending tree actually have nothing to do with mortgage loans. They put up a fancy website, spend a small fortune advertising on television collecting your personal information, and sell it to the highest bidder.

While lead generation isn’t necessarily bad, in Lending Tree’s case it’s what they’re not telling you that will cost you money. Lending Tree claims there is no fee for using their service; however, if you read the fine print on their Licenses and Disclosure page you’ll find out that if you take out a mortgage from one of the lenders in their “network” you will have a fee on your Good Faith Estimate of up to $1300. This “Computerized Loan Origination Fee” is paid by the lender out of your pocket to Lending Tree for their part in “arranging” your mortgage.

On one hand you have Lending Tree claiming there is no fee for using their website; however, you’ll have to pay the lender this unnecessary fee because you filled out a form on Lending Tree’s website. This “little white lie” could cost you $1300! This is but one reason why choosing a nationwide home mortgage loan company might not be a smart move.

Beware Yield Spread Premium

Another thing you have to watch out for when taking out a mortgage loan is Yield Spread Premium (YSP). Never heard of it before? Most homeowners haven’t and what’s more according to the Secretary of Housing and Urban Development Yield Spread Premium will cost American homeowners $16 billion dollars this year alone. So what is YSP?

Simply put, Yield Spread Premium is the markup of your mortgage rate for a commission. This markup is what makes mortgage rates “retail.” When your mortgage broker quotes you an interest rate they base a proper quote on sixteen pieces of you financial information, including their commission based markup. Your mortgage broker knows the rate you qualify from the wholesale lender; however, they mark this mortgage rate up because the lender pays them a bonus for overcharging you. The broker receives one percent of your mortgage amount for every quarter percent they overcharge you. This bonus is paid in addition to the perfectly reasonable origination fee you are paying for their services. If you agree to pay this unnecessary markup you are effectively doubling, even tripling your mortgage broker’s commission for your loan.

The good news is that garbage fees and Yield Spread Premium can be avoided when taking out a mortgage loan. You can refinance your home with a wholesale mortgage rate without paying too much at closing. To learn more about avoiding YSP and other garbage fees charged by Nationwide Home Mortgage Loan Companies, register for a free mortgage DVD. Request yours today, the DVD is free with no obligation.

If you are considering refinancing your mortgage with an interest-only Adjustable Rate Mortgage, there are several things you need to know in order to make an informed decision before signing on the dotted line. Adjustable Rate Mortgages come with the risk of payment shock when your lender adjusts the interest rate. Payment shock means waking up one day to mortgage payment you can no longer afford; here are several tips to help you decide if interest-only mortgage refinancing is right for you.

What Are Interest-Only Adjustable Rate Mortgages?

Interest-only mortgages are a type of adjustable rate mortgage where your monthly payment amount is based only on the amount of interest due that month and does not include any of the actual loan balance. Many homeowners purchase their homes with interest-only mortgages because they need the lowest possible payment amount; what many don’t understand is that interest-only mortgages do not remain interest-only forever.

At some point your lender is going to want their money back and when this happens your loan is converted to a standard Adjustable Rate Mortgage amortized for the time remaining in your loan contract.

What Every Homeowner Needs to Know About Mortgage Amortization

Amortization is a word that gets kicked around a lot but what does it mean when it comes to your mortgage loan? First of all, amortization describes the process of repaying your loan. Mortgage loans are front loaded with interest, meaning that you pay the majority of interest on the loan up-front. Your amortization schedule outlines how much of your payment is applied to interest and how much goes to the loan balance over time. You can see your amortization schedule using a basic mortgage calculator and you’ll notice that over the years the dollar amount applied to interest goes down while the portion paid back increases. What does this mean for interest-only mortgage holders?

During the interest-only period of your loan there is no amortization whatsoever. Your lender pockets the entire amount you pay each month. This interest-only period lasts for a period of time specified in your loan contract, often five to seven years. At the end of the interest-period your loan is converted to a standard Adjustable Rate Mortgage at the prevailing interest rate plus the lender’s margin.

Your amortization schedule starts when the lender converts your loan based on the time remaining in your contract. Suppose your interest-only period lasts five years on a thirty-year Adjustable Rate Mortgage. At the end of the five year interest-only period, your payments are based on a twenty-five year amortization schedule meaning they will be much higher than if you had refinanced with a standard thirty year adjustable.

Once you understand how your interest-only mortgage works you can budget for the future when your payments go up and reduce your risk of payment shock. There are other factors you need to consider when deciding if an interest-only mortgage is right for you, mainly your tolerance for financial risk. Mortgage interest rates are nearly impossible to predict and economic uncertainty coupled with your lender’s generous margin has the potential for you to wind up with double digit mortgage rates.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free refinancing video tutorial. Register today with no obligation by clicking the DVD image at the top of this page.

If you are considering refinancing your mortgage with an Interest Only or Option Adjustable Rate Mortgage, there are a number of pitfalls you need to know about. While it’s true that interest loans and option mortgages are much riskier than traditional mortgages, when used correctly these loans could save you thousands of dollars. There are several tips to help you avoid the pitfalls of interest only loans.

What are the Differences Between Interest Only and Option Loans?

Interest only mortgages are as their name implies, loans with payments based only on the amount of interest due that month. Option loans offer greater flexibility; however, they are also more prone to abuse by homeowners who do not understand the risk. Option loans are also called “payment option” loans because the homeowner has the choice of making several different payments each month. If you refinance your mortgage with a payment option loan you’ll have the choice of making a payment based on a 30-year repayment schedule, a 15-year repayment schedule, an interest only payment, and the ultra-risky “minimum payment.”

The problem with the minimum payment option is that it does not cover all of the interest due and the unpaid amount is simply tacked on to the outstanding balance of your loan. This results in a phenomenon known as “negative amortization,” or simply put a loan that grows over time.

What are the Pitfalls of Interest Only Loans?

Negative amortization is one pitfall; however, the single greatest pitfall you could face with an interest only loan, or any Adjustable Rate Mortgage for that matter, is payment shock. This happens when you wake up one day and find that the lender has either adjusted your interest rate or recast the loan and you can no longer afford your payment. Payment shock happens for several different reasons.

Many homeowners find that after abusing Option Adjustable Rate Mortgages with the minimum payment, their loan balance reaches 110% to 125% of their home’s value and the lender automatically recasts their loan. Recasting simply means the lender is executing their right to convert the loan to a fully-amortizing Adjustable Rate Mortgage. If you’ve been keeping your budget afloat by paying the minimum amount on an Option Adjustable Rate Mortgage, you will undoubtedly experience payment shock first hand.

Recasting isn’t limited to option loans; homeowners with interest only loans could face recasting if their caps are not structured properly. Caps are the built in safety features that protect homeowners from rising interest rates and skyrocketing payment amounts. There are two varieties of caps that you need to be aware of: periodic caps and payment caps. Periodic caps limit the amount your interest rate can go up during any adjustment period or in the case of a lifetime periodic cap, over the entire duration of your loan. Similarly, payment caps limit how much your payment can change during any one adjustment or over the lifetime of the loan.

When refinancing with any type of Adjustable Rate Mortgage you need to make sure that your loan has both periodic and payment caps. Loans that only have payment caps are prone to negative amortization and ultimately recasting when the cap prevents the payment from going up enough to cover all of the interest due in a given month. When this happens the unpaid interest is added to the outstanding balance just as it is with the minimum option payment.

Other pitfalls of interest only mortgages include overpaying for lender margin and fees. The margin is the amount your lender tacks on to your interest rate after each adjustment for a profit. Many homeowners think that when the lender adjusts their mortgage rate it changes to whatever index their loan is tied to; however, lenders always markup the index with their margin. The margin is set by the lender so you’ll want to carefully compare margins when shopping for your interest only mortgage.

You can learn more pitfalls of interest only loans, including strategies to avoid paying too much with my free refinancing toolkit. Register today by clicking the DVD image at the top of this page; the toolkit is yours free with no obligation.

Here’s an example of how not to refinance your mortgage; a typical refinancing transaction gone wrong. Our homeowner in this is example is called Jackie. Jackie purchased her home in Germantown Maryland, and owes $330,000 on an existing thirty year mortgage at 9% interest. Jackie decides she’d like to refinance her fixed rate mortgage and take cash back to pay off the bills she racked up during her family’s summer vacation.

How does Jackie go about refinancing her mortgage? She calls a mortgage broker recommended by one of her girlfriends. We’ll call the mortgage broker Terry. Jackie’s friend has never used this broker, she only knew him as a casual acquaintance. Jackie calls up Terry who immediately goes into his sales mode pitching Jackie with a hybrid Adjustable Rate Mortgage. On the surface it’s an attractive offer: Terry tells Jackie that she qualifies for a 7.75 percent interest rate that’s fixed for 5 years. He’s only charging her 1.5 points for the origination fee and she’ll get $25,000 back at closing.

Jackie thinks she got a fantastic deal and thanks her friend for referring her to Terry. Think Jackie got a good deal refinancing her mortgage? Well, since the title of this article is how not to refinance your mortgage, you’re probably thinking Jackie got taken to the cleaners, and you’re right. Here’s where Jackie went wrong with her new mortgage loan.

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If you are a homeowner who is considering mortgage refinancing, there are a number of costly mistakes that result in overpaying thousands of dollars for your new loan. Doing your homework and researching mortgage lenders will help you avoid 90% of the costly mistakes homeowners make. Here are five costly mistakes you need to avoid to help you on the right path to the perfect mortgage.

I. Not Understanding Mortgage Fees & Retail Markup

It is important to understand how retail mortgage companies and brokers make their money before shopping for a mortgage loan. Remember that mortgage loans are retail products just like automobiles, and just like a car dealer, your mortgage company marks up their products before selling them to you. When you shop for a car if you know the wholesale price of that car you are much better off when negotiating with the dealer over price. The same is true of mortgage interest rates. Find out the wholesale mortgage rate you qualified for and you can avoid paying the mortgage company or broker markup and save yourself thousands of dollars in unnecessary mortgage interest. This retail markup of your mortgage interest rate is called Yield Spread Premium and your number one priority when refinancing your mortgage needs to be avoiding it.

II. Neglecting to Shop Around for the Best Mortgage Offer

Many homeowners jump of the first favorable offer they are approved for without comparing lender fees and closing costs. Mortgage offers are often loaded with junk fees that you can avoid paying if you do your homework, recognize the fee as garbage, and refuse to pay it.

III. Choosing Adjustable Rate Mortgages for The Wrong Reasons

Adjustable Rate Mortgages can save you a lot of money if you use them properly. Many homeowners choose adjustable rate mortgages because they qualify for higher loan amounts. These loans allow them to purchase bigger homes than they would be able to with a fixed rate mortgage. The problem comes when the mortgage lender begins adjusting the interest rate and the payments skyrocket. Many homeowners find they can no longer afford their payments when this happens and risk losing their homes.

IV. Choosing a Mortgage Loan Based on the Interest Rate Alone

The mortgage rate is just one factor to consider when choosing a mortgage. If you neglect to consider loan terms and closing costs you could find that low mortgage rate costing you thousands of dollars in unnecessary fees and penalties.

V. Not Comparison Shopping With The Good Faith Estimate

Many financial advisors recommend that homeowners use the Annual Percentage Rate when comparison shopping for a new mortgage. The Annual Percentage Rate, or APR, is supposed to give you an idea of the total cost of a mortgage loan expressed as a percentage of the loan amount paid each year. The APR is a good starting point for choosing a mortgage; however, it does not give you enough information to make an informed decision as to which mortgage is best for your financial situation. Always use the Good Faith Estimate to perform a line-by-line comparison of mortgage offers before making a decision.

You can learn more about your mortgage refinancing options, including other costly mistakes you need to avoid with the free mortgage video tutorial found on the top of this page.