Home Mortgage Refinancing Guide

If you are in the process of refinancing your home mortgage one of your concerns is undoubtedly paying too much in refinance fees for the new mortgage.

How do you know which fees are garbage headed straight for your mortgage brokers pocket and which ones are absolutely necessary? Here are several tips to help you avoid paying too much for your next home loan.

Refinance Fees 101

The first thing you need to know about the fees you’ll be charged when refinancing isn’t exactly a fee; however, it is the single reason most homeowners overpay for their loans. Did you know that the person arranging your loan marks up your mortgage rate for a commission? This is almost always done without your knowledge or consent. The commission generated by this markup is known as Yield Spread Premium and is a percentage of your loan created when the broker locks and closes your loan with a higher than market interest rate. Lenders reward mortgage brokers with a commission because loans with higher than market rates bring in higher profits when sold to investors on the secondary mortgage market.

The fact that you know about Yield Spread Premium gives you a huge advantage over most homeowners. Avoiding this unnecessary markup isn’t as tricky as you might think…once you know how to recognize the markup in your loan documents you can find mortgage brokers willing to work for a flat origination fee as low as one percent of your loan amount.

How to Spot Mortgage Rate Markup

The first opportunity you’ll have to spot this unnecessary markup of your mortgage interest rate does not come with the Good Faith Estimate as you might think but from the lender’s rate lock confirmation. The Good Faith Estimates you receive when shopping for a mortgage are little more than a marketing tool used to draw you in to overpriced loan offerings; however, rate lock confirmation from the lender tells the real story about your loan.

First of all, make sure the lock confirmation you get is in writing and comes from the lender, not the broker. Some dishonest mortgage companies and brokers will try and pass off a written lock confirmation on their own company letterhead…if it isn’t in writing from the lender your rate lock is meaningless. Once you have written confirmation from the lender there are several important items disclosed on the lock. Your mortgage rate, Yield Spread Premium, points, and the duration of your lock are all detailed on the lender’s lock confirmation.

Mortgage Junk Fee

Never agree to pay a fee to lock in your interest rate. Mortgage lenders do not charge rate lock fees. This fee to lock your mortgage rate is pure garbage. If you agree to pay a rate lock fee it will go directly into your mortgage broker’s pocket.

You can learn more about mortgage refinance fees you need to avoid including strategies for refinancing with a wholesale mortgage rate by registering for the free videos on this website.

Annual Percentage Rate (APR) is an interest rate that factors in costs and fees for your mortgage loan in addition to the mortgage rate. APR is expressed as a yearly rate of interest and was intended to give you an idea of the total cost of borrowing. Annual Percentage Rate is not the mortgage rate your payments are based on.

The Annual Percentage Rate was supposed to make choosing a mortgage loan easier because you could use the figure to determine which loan had the lowest overall costs. If the loan’s mortgage rate and APR were low you could assume the lender fees were low as well.

The problem is while Truth in Lending laws require that mortgage lenders disclose the APR for their home loans, there are no standard rules for calculating the Annual Percentage Rate. This means mortgage lenders can more or less pick and choose which fees they include in the calculation. This makes the Annual Percentage Rate more of a marketing tool for lenders and all but useless for determining which loan offer is a better deal.

You can learn more about a better way to shop for a mortgage loan by registering for the free mortgage videos available on this website.

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.

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.

Coming up with the necessary down payment to purchase your home can be difficult. For many people achieving the dream of homeownership is only possible with a 100% mortgage loan.

Here are the basics you need to know about so called “no money down” or “no down payment” loans. 100% mortgage loans are still common with competitive mortgage rates. This makes it easier for homebuyers with little or no down payment to purchase homes, even with credit problems.

100% Mortgage Loan Basics

Despite the recent credit crisis, 100% mortgage financing is still possible for the average homebuyer. There are two basic options available to the average homeowner for 100% financing.

PMI Loans: Many lenders require Private Mortgage Insurance (PMI) for any homeowner with less than a 20% down payment. Private Mortgage Insurance can be expensive and could add hundreds of dollars to your monthly mortgage payment.

If you’re not familiar with Private Mortgage Insurance this insurance protects the lender from losses if you default on your loan. In the event of foreclosure the insurance pays the lenders expenses; this insurance does nothing to protect you as a homeowner. If you have poor credit there is little you can do to avoid paying PMI. If you have good credit the second option could save you money.

80/20 Mortgage Loans: 80/20 loans are also called “piggyback loans.” Taking out an 80/20 loan allows you to avoid the expense of Private Mortgage Insurance because your primary lender is only financing 80% of your home. You will have a second “piggyback” loan for the remaining 20%. This second loan is typically with a different lender and will carry a higher mortgage rate because this lender is assuming great risk than the primary lender. The downside of an 80/20 loan is that you will have two mortgage payments to make each month. Fall behind on either mortgage and you could lose your home to foreclosure.

100% Mortgage Loan Risks

There are financial risks involved with 100% mortgage loans. Primarily, because you are financing the total value of your home, you will have next to no equity in the property. If home values in your area decline you could find yourself owning more than your home is worth. You can learn more about your mortgage options, including ways to minimize your financial risk and save thousands of dollars in the process by registering for a free mortgage DVD.