Home Mortgage Refinancing Guide

If you’re in the process of refinancing your mortgage loan researching current mortgage rates won’t save you a dime unless you fully understand how mortgage rates are quoted. The rate quotes you collect on the Internet and by calling around from the yellow pages are retail quotes that include commission based markup. If you want the lowest possible mortgage rate when refinancing your home you’ll need to find wholesale mortgage rates. Here are several tips to help you research current mortgage rates from wholesale sources.

Understanding Mortgage Rate Quotes

In order to accurately quote an interest rate the mortgage lender needs sixteen pieces of information about your finances. If you’re working with a mortgage broker that quotes you mortgage rates without requesting detailed information about your finances this broker has no intention of honoring whatever mortgage rate they quote you. This is a bait and switch tactic employed by many shady brokers trying to push expensive loans with above market interest rates.

What You Need to Know About Yield Spread Premium

The second thing you need to know about current mortgage rates is that the quotes you receive include so called “retail markup.” Yield Spread Premium is a bonus paid to your mortgage company or broker for making up the wholesale rate the lender approved you. Lenders pay this commission because mortgage loans with above market rates sell like hotcakes to investors on the secondary mortgage market. Lenders can afford this incentive for overcharging you because it brings in a significant amount of profit for them.

Here’s how Yield Spread Premium works. Suppose your broker quotes you a current mortgage rate of 6.75 percent on a $250,000 fixed rate loan. Your broker charges you an origination fee of one percent or $2,500, which is a reasonable fee to pay for their services. Most homeowners would jump at a loan like this without thinking; however, it’s what you don’t know that will cost you thousands of dollars unnecessarily.

In this refinancing example, what your mortgage broke isn’t telling you is that you actually qualified for a current mortgage rate of 6.0 percent! The broker marked it up to 6.75 percent because the lender pays them an additional point (one percent of your loan amount or $2500 in this example) for every quarter percent they overcharging you. If you agree to this loan the lender pays your mortgage broker three points, or $7500 on top of the $2500 you’ve already paid them. Your mortgage broker walks away from the table with $10,000 for just a few hours work. Despite this ridiculous commission you might be wondering why you should care about this mortgage broker rebate paid by the lender.

If the money isn’t coming out of your pocket why should you care what the lender pays your broker? The problem with Yield Spread Premium doesn’t come from the fact that the lender is paying the fee, it comes from the reason this fee is being paid. Most mortgage brokers will never admit that they’ve marked up your mortgage rate to get a kickback from the lender; in fact, many become angry and defensive if you bring up the subject with them. The real problem is that your broker is marking your rate up behind your back without properly disclosing what they’re doing. Many mortgage brokers go so far as to forge rate lock confirmation documents to hide what they’ve done with your interest rate.

How to Recognize Yield Spread Premium

There are two documents you receive in the process of refinancing that disclose Yield Spread Premium. The first is your rate lock confirmation provided by the lender. This is not a document typed up by your mortgage broker “locking” your mortgage interest rate. If you get any kind of rate lock guarantee from the broker that did not come from the lender (written on your broker’s letterhead for example) then you have not locked in your mortgage rate. Make sure that you get written confirmation of the lock from the lender. This document will have any Yield Spread Premium clearly disclosed on it. If your mortgage broker stalls or refuses to provide this document from the lender you know what they’re hiding and cannot be trusted.

The second opportunity you’ll have to document Yield Spread Premium associated with your mortgage is the HUD 1 statement. Make sure you get this document at least 24 hours prior to signing your contract. It will fully disclose all of the fees and markup and needs to be gone over with a fine toothed comb before you sign anything. If Yield Spread Premium is a part of your new mortgage you will find this disclosed around lines 810-11. It may be listed as Yield Spread Premium, Mortgage Broker Rebate, or YSP paid to broker. The amount listed is in dollars; you might be shocked at the number you find there.

Fortunately you can avoid Yield Spread Premium when refinancing your home. Doing this allows you to take advantage of wholesale mortgage rates and save yourself thousands of dollars. You can learn more about finding current mortgage rates that do not include mortgage broker markup by registering for a free mortgage DVD.

If you’re a homeowner you need to watch this free DVD; it could save you thousands of dollars and countless mortgage headaches.

Register today, this DVD is yours free with no obligation.

Points on a mortgage loan can be one of the most confusing aspects of financing your home. The process of taking out a mortgage is intimidating enough…throw in unfamiliar jargon and fees and you’ve got a recipe for financial nightmares. Points on a mortgage loan come in two flavors and depending on the lender and your financial situation you may or may not be required to pay both types. Here are several tips to help you make sense of points and decide paying points is right for you.

What Are Mortgage Points?

Points come in two varieties: there are discount points you pay to your lender and origination points you pay to the mortgage broker arranging your loan. Regardless of the type of point, one point is always equal to one percent of your mortgage amount.

What Are Origination Points?

The first variety of “points” you’re likely to encounter with your mortgage are origination points. This is a fee you pay to the Mortgage Company or broker for their part in “arranging” your loan. Origination points are not set by the lender and vary from one mortgage broker to the next. This fee is not the only form of compensation that your broker receives; mortgage brokers will also mark up your interest rate to get a commission from the wholesale lender. Because you’re already paying the mortgage broker a fee this markup is completely unnecessary and you should simply refuse to pay it. This unnecessary markup is called Yield Spread Premium and avoiding it is the topic of the free video tutorial available on this site. A reasonable fee to pay for mortgage origination is one percent of your loan amount and not a penny more.

What Are Discount Points?

Discount points are paid to your lender at closing in exchange for something. That something could be a lower mortgage interest rate, or is simply paid as a condition of qualifying for your loan. Your lender might require that you pay two points to qualify for a $150,000 mortgage; in this case you would be required to pay 2% of $150,000 or $3,000 at closing. If your lender does not require you to pay points you might consider paying points to lower your mortgage interest rate.

There are pros and cons to paying points to your lender in exchange for a lower mortgage rate. One disadvantage of paying this fee is that while it may lower your mortgage interest rate it does not lower your loan balance. You can generally expect that paying discount points will lower your mortgage rate by .25 percent for each point you pay. Remember that one point is one percent of your mortgage amount, due at closing. Whether or not it makes sense to pay discount points in your situation depends mainly on how long you plan on keeping the loan.

There are other advantages to paying discount points. The IRS considers discount points to be prepaid mortgage interest and you will be able to deduct part or all of your points depending on IRS rules for your situation. Before deciding if paying points makes sense you should determine how long it will take you to recoup the expenses based on the savings you’ll get from a lower mortgage payment. The longer you plan on keeping the loan the more sense it makes to pay points and recoup your expenses. You can learn more about your mortgage options with my free video toolkit. Register today with the link at the top of this page.

What is a “Point” and should you consider paying points for your new mortgage loan? Points come in two varieties; however, for both types, one point is one percent of your loan amount. Suppose you were borrowing $200,000 with your mortgage loan, one point in this case would be $2,000. The two types of points are “origination” points paid to the Mortgage Company or broker that originates your loan, and “discount” points you pay in exchange for a lower mortgage rate or better loan terms.

Point Mortgage Help: Should You Consider Paying Discount Points?

Discount points can lower your mortgage interest rate. Whether or not you should pay the points depends on your situation. Generally speaking, paying your lender one point will lower your mortgage interest rate by .25%. In order for this fee to be advantageous you need to recoup the expense from your lower payment amount. The longer you plan on staying in your home, the mortgage advantageous discounts points can be because you have more time to recoup the expense.

You can calculate the break even point by dividing the amount you are paying in points by the amount you save each month with a lower mortgage payment. This break even point is the number of months it will take you to recoup the expense before you realize any savings. Suppose you borrow the $200,000 from our previous example, with a zero point mortgage you might qualify for a 7% mortgage interest rate. Pay two points for the same mortgage and you would qualify for an interest rate of 6.5%. The difference in your monthly payment is $1,330 at 7.0% and $1,264 at 6.5%. Paying two points will cost you $2,000 and save you $66 per month. It will take 30 months to realize a savings in this example.

Point Mortgage Help: How Much Should You Pay For Origination Points?

Origination points should never be more than 1-1.5% of the loan amount for a home you will occupy. If you are financing an investment property, reasonable origination fees should not exceed 2-2.5% of the mortgage amount. If your mortgage company is asking for a higher amount you should question your loan representative as to the validity of this fee. You can learn more about your mortgage options, including expensive mistakes you need to avoid with our free, six part mortgage tutorial.