Mortgage Refinance Guide

Did you know refinancing your mortgage is just like car buying? Most homeowners don’t know that mortgages are retail products like cars; suggested retail value is not what you want to pay when buying a car or refinancing your mortgage. Here are several tips to help you pay less when refinancing your mortgage with a wholesale interest rate.

Do you know what makes mortgage loans “retail?” Retail mortgage loans have interest rates that have been marked up by the loan originator for a commission. Your loan originator is the person responsible for putting your loan together; this person could be a mortgage broker or a representative at your local mortgage company. Loan originators mark up interest rates because the wholesale lender pays them a bonus for overcharging you. When you close on a new mortgage with an above market interest rate the wholesale lender pays a bonus of one percent for every quarter percent you overpay.

The difference between the interest rate your wholesale lender approves you and the mortgage rate you close with is called Yield Spread Premium. According to the Secretary of Housing and Urban Development Yield Spread Premium will cost homeowners sixteen billion dollars in unnecessary finance charges this year alone. The good news is that you can refinance your mortgage with a wholesale interest rate and avoid paying Yield Spread Premium altogether.

Homeowners who learn to recognize Yield Spread Premium on the Good Faith Estimate and HUD-1 statement can negotiate to find loan originators that won’t charge this unnecessary markup.

You’re already paying origination fees for the broker’s part in arranging your loan; if you agree to Yield Spread Premium you’re paying this person double, even triple they do. You can learn more about refinancing your mortgage without paying too much with our free mortgage toolkit.