Home Mortgage Refinancing Guide

Most homeowners don’t understand how their mortgage broker is paid for the work they do arranging a home loan. Brokers are compensated for their work from two sources; understanding how this compensation works will help you avoid paying too much for your next mortgage loan. Here are several tips to help you understand how mortgage brokers overcharge people to boost their commissions.

What is YSP?

YSP or Yield Spread Premium is a fee paid by the wholesale lender when your broker locks and closes your mortgage with an above market interest rate. Lenders reward mortgage brokers for overcharging because these loans bring a premium profit when sold to investors. The amount of Yield Spread Premium depends on how much your broker overcharges you. For every .25% you agree to overpay the broker’s “kickback” is 1% of your loan amount.

Suppose you are refinancing your home loan for $250,000. The broker quotes you a rate of 6.75% but doesn’t tell you that you’ve qualified for 6.0%. The spread between what you could have had and what you got is .75% which creates 3% of Yield Spread Premium for the broker. Your broker receives a kickback of $7,500 from the lender for overcharging you…in addition to the origination fee that you’re already paying.

Yield Spread Premium can be hard to spot unless you know what to look for. Many brokers “forget” to list the fee on your Good Faith Estimate. If this is the case the next opportunity you will have to catch it is on the rate lock confirmation from the wholesale lender. Make sure the confirmation you receive after locking your rate comes from the lender and not the broker…many brokers provide rate lock confirmation typed up on their own letterhead. If you get a rate lock confirmation typed up on the broker’s letterhead you do not have proof of anything…let alone guaranteeing your mortgage rate.

Your last opportunity to catch Yield Spread Premium before closing on your new mortgage will be on the HUD-1 statement. The fee is usually listed around lines 810-811; however, you may find it further down. It is often called “mortgage broker rebate” or “YSP paid to broker.” If you find this on your HUD-1 statement you have a mortgage rate that includes commission based markup.

The Perfect Mortgage Loan

Most homeowners don’t know what a good mortgage deal looks like. It is possible to get a wholesale mortgage rate without Yield Spread Premium and pay a one percent origination fee to the broker. You can learn more about refinancing your home with a wholesale mortgage rate while avoiding junk fees by registering for my free video tutorial.

Locking in your mortgage rate can be a source of confusion and frustration for many homeowners. When and how do you lock in your mortgage rate? How do you know that your mortgage broker really locked in your rate? Mortgage rates change on a daily even hourly basis; if you miss the opportunity to lock you could lose that low mortgage rate your broker promised you. Here are several tips to help you understand mortgage rate locks and what they mean for your home loan and your bottom line when refinancing.

What Does Locking Your Rate Mean?

When you choose to lock your rate, a process you must initiate yourself, your broker “locks” your mortgage rate with the wholesale lender. The idea is to hold that rate long enough for you to close on the loan. Your broker sets the lock on your behalf with the wholesale lender…more importantly the lock determines the amount of Yield Spread Premium on your new home loan.

What is Yield Spread Premium?

Yield Spread Premium is a percentage of your loan amount created when the broker locks you with an above market mortgage rate. Your broker knows the wholesale mortgage rate that your lender approved you; however, they mark up this interest rate to get a commission from the lender. This commission is called Yield Spread Premium and if you want the best possible mortgage for the long term you need to avoid this commission based markup.

If you plan on living in your home for the long term does it make sense to be constantly refinancing your mortgage loan? Mortgage rates are currently and historically low levels…You’ll probably never see rates below four percent that aren’t teasers. With this in mind doesn’t it make sense to lock in a great rate now and keep it for the long haul? If this is what you’re trying to accomplish you’ll want to lock in a wholesale mortgage rate. Before you can get a wholesale rate you’ll need to understand how mortgage brokers are compensated for originating you loan.

How Are Mortgage Brokers Paid?

There are several ways your mortgage broker gets paid (often overpaid) for their work on your home loan.

Many brokers tell you that they’re not charging you origination fees because of Yield Spread Premium. Does it make sense to take a higher mortgage rate instead of paying a one percent origination fee when you plan on keeping your home for the long term? Absolutely not…If you plan on living in your home for the long term you want a wholesale rate and you only want to pay a once percent origination fee.

How Do You Lock Your Mortgage Rate?

Before you decide to lock in your mortgage rate you need to be sure that you’re working with the right mortgage broker. Talk to your broker about the rate you qualify based on your financial details. Did you know it takes sixteen pieces of your financial details to accurately quote a mortgage rate? If your broker has not asked for detailed financial information before quoting you a rate you can be certain that they have no intention of honoring that rate.

Talk to your broker about their compensation. This includes the origination fee, broker’s fee, and any Yield Spread Premium they get from marking up your mortgage rate.

Remember that a reasonable amount to pay for loan origination including origination points and fees should not be more than one percent of your loan amount. Ask your broker for an updated Good Faith Estimate on a daily bases; remember that mortgage rates are always changing.

Before you make the decision to lock your mortgage rate make sure you have an updated Good Faith Estimate from the same day.

Finally, after you’ve instructed your mortgage broker to lock make sure they email you the rate lock confirmation from the wholesale lender. This confirmation will show you the rate, points, and any Yield Spread Premium associated with your loan. You should have this confirmation within one hour of locking…if you don’t get it contact your broker immediately. Make sure that you get the rate lock from the wholesale lender. Don’t accept anything typed up by your mortgage broker on their own letter head as this is not a guarantee of anything and you want to see if there is any Yield Spread Premium included in your lock.

You can learn more about refinancing your mortgage with a wholesale rate while only paying a one percent origination fee by registering for my free mortgage refinancing videos.

If you’re in the process of refinancing your home mortgage loan, understanding how mortgage rate quotes work will help you recognize a good deal when you find one. In order to comparison shop effectively it is important that you know how loan originators work and how they are compensated. Here are several tips to help you understand rate quotes and find the best deal when refinancing your home mortgage loan.

Your Loan Originator is a Middleman

The first thing you need to understand is that your loan originator does not set your mortgage rate or underwrite your loan. This person is simply a salesperson trying to earn a commission by referring your business to a wholesale lender. Your loan originator could be a mortgage broker or a representative at a brick and mortar company or mortgage website. There are two ways this salesperson is compensated for placing you with a mortgage loan. Understanding these fees will help you avoid being taken advantage of by this person.

Loan Origination Fees vs. Yield Spread Premium

Most mortgage brokers charge an origination fee for their part in arranging your mortgage loan. This fee can range from less than one percent to several percent; however, a reasonable fee to pay for loan origination should not be more than one percent of your loan amount. This is the only fee you can expect your mortgage broker to be upfront with you about; many brokers try and squeeze additional compensation out of your mortgage by marking up your interest rate. This broker added markup is called Yield Spread Premium.

Beware Broker Yield Spread Premium

The second method of mortgage broker compensation you need to be aware of is known as Yield Spread Premium. The “spread” is simply the difference between the mortgage rate you were approved and the rate quoted to you by your mortgage broker. Your broker marks up the interest rate because the wholesale lender behind your mortgage pays them a bonus of one percent for every .25 percent you agree to overpay. This “kickback” for overcharging you is paid on top of the origination fee you’re already paying for the broker’s services. Agreeing to pay Yield Spread Premium when refinancing your mortgage will double, often triple the compensation your broker receives for arranging your mortgage.

Many brokers tell you not to worry about Yield Spread Premium because the fee isn’t coming out of your pocket. This is a sure sign of a dishonest mortgage broker. Yield Spread Premium is paid because you’ve agreed to overpay for you loan. Anyone that tells you differently is lying.

Understanding Mortgage Rate Quotes

Your mortgage broker will always try and place you with the mortgage that makes them the largest commission. Once your mortgage broker sizes you up much like a used car salesman, they prepare a quoted based on how much they think you’ll agree to pay.

You an be certain the rate quote you receive includes Yield Spread Premium and that your Good Faith Estimate will have an origination fee in excess of one percent. Your job is to find an honest mortgage broker (they do exist) that will work for a reasonable origination fee without charging you Yield Spread Premium.

How to Negotiate with a Mortgage Broker

Shopping for a mortgage broker is a lot like shopping for a used car. Start by being direct and upfront about your expectations for the mortgage. Tell your potential mortgage brokers that you understand how Yield Spread Premium works and will not accept any loan offer that includes the markup. Tell them that you will pay a reasonable amount for the origination fee and try to negotiate this fee to one percent or less if possible of your mortgage amount.

Beware Pressure Sales Tactics and Intimidation

Never let a mortgage broker pressure you into taking a mortgage that isn’t right for your situation. If you feel pressure or are uncomfortable with your mortgage broker simply thank them for their time and move on to the next. Mortgage brokers are a dime a dozen in most states and finding the right person to originate your mortgage could be just a phone call away.

You can learn more about refinancing with a wholesale mortgage rate without paying too much with free mortgage videos. The video tutorial is divided into six sections and walks you step-by-step through the process of requesting rate quotes, comparison shopping, and refinancing with a wholesale mortgage rate. Request your videos today; they’re free with no obligation.

If you’re shopping mortgage interest rates to purchase your home or refinance an existing mortgage there are several things you need to know to avoid paying too much for the loan. Here are several tips to help you qualify for the best mortgage rate without being taken advantage of in the process.

Wholesale vs. Retail Mortgage Rates

Mortgage rates come in two varieties. There are the wholesale rates offered to mortgage brokers and the retail mortgage rates they sell to consumers for a commission. Your mortgage broker earns a commission in two ways. The first way your broker is compensated is by charging you an origination fee for their services. This is an upfront fee found on your Good Faith Estimate and is typically for one percent of your mortgage amount.

The second way brokers are compensated is with a kickback from the mortgage lender behind your loan. Mortgage lenders reward brokers for originating loans with above market interest rates. The difference between the mortgage rate you could have had and the one your broker sold you is called Yield Spread Premium. For every quarter percent that your mortgage broker overcharges you, that person receives one percent of your loan amount as a bonus! This is the dirty little secret of the mortgage industry that costs American homeowners nearly sixteen billion dollars every year according to the secretary of Housing and Urban Development.

Yield Spread Premium Can Be Avoided

The good news for savvy homeowners is that Yield Spread Premium can be avoided. Learn to spot the markup on your Good Faith Estimate and HUD-1 Statement and you can negotiate with your mortgage broker to pay a reasonable origination fee without paying Yield Spread Premium. This allows you access to wholesale mortgage rates saving you thousands of dollars in finance charges.

You can start by telling your mortgage broker that you understand how Yield Spread Premium words and will not accept a mortgage that includes the markup. Try negotiating with mortgage brokers that run their own businesses as a broker with a large firm may not have the authority to make the deal without retail markup.

If you’d like more advice about financing your home with a wholesale mortgage rate, register for this free mortgage refinancing tutorial.

If you are in the market for a new mortgage loan, doing your homework before applying can literally save you thousands of dollars and many headaches. The mortgage industry has earned a reputation for sleazy sales tactics rivaling the worst used car salesman; most mortgage brokers today only care about pulling in a six figure salary regardless of who they step on. Here are several tips to help you avoid being taken advantage of when taking out a new purchase mortgage or refinancing your existing loan.

Tip Number One: Beware Bank Originated Mortgage Loans

Many people think banks and credit unions are the best places to shop for interest rates. While this can be true for savings accounts and CDs, taking out a mortgage from your bank or credit union is a very bad idea. Banks and credit unions are exempt from the Real Estate Settlement Procedure Act (RESPA) that protects homeowners from abusive lending practices by requiring mortgage lenders to disclose their profit margins and mortgage rate markup. The Banking Lobby spent millions of dollars making sure Congress excluded mortgage bankers from this important disclosure legislation; as a result your bank does not have to play by the same rules as other mortgage lenders.

Banks Charge Service Release Premium

Banks make the majority of their profit by selling mortgage loans to investors on the secondary mortgage market. Banks make the majority of this profit by charging above market mortgage rates. Your bank knows the mortgage rate you would qualify in the wholesale market; however, banks set their own rates to include the markup known as Service Release Premium. Because banks are exempt from RESPA they will never tell you how much they’ve marked up your mortgage interest rate. In fact, bank employees will often show you their rate sheets and swear their rates are not marked up. Only by comparing the bank rate sheet to the par rates charged by wholesale lenders can you see the bank’s markup. Why would you ever consider taking out a mortgage from someone that doesn’t have to play by the rules?

Tip Number Two: Mortgage Brokers Charge Yield Spread Premium

We’ve already established that mortgage bankers are evil, but what about mortgage brokers? Like your bank, mortgage brokers make the majority of their profit by marking up your mortgage interest rate. This markup of your mortgage rate is called Yield Spread Premium and is responsible for the sleazy pressure sales tactics used by mortgage brokers today. Mortgage brokers charge Yield Spread Premium because the lender pays them a bonus of one percent of your loan amount for every quarter percent they mark up your rate. Most brokers do this without telling you.

Mortgage brokers have clever ways of disguising their markup on the HUD-1 settlement statement and often leave it off the Good Faith Estimate altogether. When questioned about Yield Spread Premium many brokers become defensive, even angry, telling you that because this fee is paid by the lender and that you shouldn’t worry about it. What you should worry about is why this fee is being paid by the lender. The fee is paid because you are accepting an above market interest rate that could raise your payment hundreds of dollars each month unnecessarily. Did you know the Secretary of Housing and Urban development was recently quoted saying that homeowners overpay nearly sixteen billion dollars annually because of this markup?

How to Avoid Paying Yield Spread Premium

By avoiding this unnecessary markup of your mortgage interest rate you can refinance with a wholesale mortgage rate. Start by asking your mortgage broker what the “par” rate is and ask to see the rate sheet from the wholesale lender. Make sure the rate sheet you see is from the wholesale lender and not typed up on your mortgage broker’s company letterhead. Tell your broker that you understand how Yield Spread Premium works and will not tolerate the markup or any kind of “lender paid compensation” on your loan. It’s usually best to negotiate with a self-employed mortgage broker that owns their business as brokers working for large firms often lack the authority to make a deal like this.

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