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No Fee Mortgage Refinancing

August 21, 2007

No fee mortgage refinancing sounds like a great deal; however, as most homeowners quickly learn, there are no free lunches when it comes to your mortgage loans. Most of the so called “no fee” mortgages you see advertised simply trade off a higher mortgage rate for the lender’s share of closing costs. Every mortgage has fees, the difference is you can choose to pay these fees now or keep paying them for the entire duration of your loan.

No Fee Mortgage LoanThere are several circumstances where no fee mortgage refinancing can be used to your advantage. You can use Yield Spread Premium (YSP) to pay your fees if you’re in a pinch and need to refinance. This is an expensive way of paying your closing costs and may not work in every situation; however, if it helps you save your home from a risky adjustable rate mortgage the tradeoff will be worth it.

If you’re not already familiar with Yield Spread Premium it is the markup your mortgage broker adds to your interest rate to get a commission from the lender. When a wholesale lender approves your mortgage you qualify for a specific mortgage rate. Your broker knows this rate but most will quote you a higher interest rate without telling you what you’ve qualified, pocketing the commission from the lender at your expense.

An honest mortgage broker has the ability to structure your loan where the commission from the lender is used to pay your closing costs. Sure, you’re accepting an above market interest rate; however, for every .25% you agree to pay above the mortgage rate you qualified the broker gets 1% of the loan amount back. You’ll have to pay the broker an origination fee for their services; however, Yield Spread Premium can be used to pay your refinancing expenses. Here’s an example of how Yield Spread Premium can be leveraged to your advantage.

Suppose you qualify for a 6.0% mortgage rate when refinancing your loan from the wholesale lender. If you agree to pay 6.75% your broker will receive a commission of 3% of your mortgage amount. On a $200,000 mortgage the Yield Spread Premium in this example provides $6,000 which is more than enough to cover your closing costs. This assumes you’re working with an honest mortgage broker that agrees to let you use this money to pay your closing costs.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free mortgage toolkit; register today, the video tutorial is yours free with no obligation.

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How to Compare Closing Costs When Refinancing Your Mortgage

July 17, 2007

Closing costs can be one of the most frustrating and confusing aspects of refinancing your mortgage. Settlement charges are rarely explained and vary widely from lender to lender. How do you know that the settlement charges listed on your Good Faith Estimate are accurate and fair? Are any of the third party charges subject to negotiation? Here are several tips to help you make sense of third party settlement charges when refinancing your mortgage.

Mortgage lenders and brokers are notorious for low-balling third party settlement charges to make their loan offers seem mortgage attractive. The closing costs you pay when refinancing can be divided into the following four categories:

  • Lender Fees
  • Third Party Fees Guaranteed by the Lender
  • Third Party Settlement Fees not Guaranteed by the Lender
  • Miscellaneous Settlement Costs

    • The fees you pay to the lender directly are frequently garbage fees and are the area you should focus most of your attention. Anything listed on your Good Faith Estimate that resembles an “application fee,” “broker courier fee,” “lock fee,” “loan submission fee,” or “administration fee” is a junk fee you can simply refuse to pay.

    Another lender fee you should pay close attention to are points. Points come in two flavors: there are the origination points you pay the person who arranges your loan and the discount points you pay the lender in exchange for something like a lower interest rate. A reasonable origination fee is one point, or one percent of your loan amount. Whether or not it makes sense to pay discount points depends on your circumstance and is the topic of another discussion. Points confuse many homeowners because they are not listed dollar amounts; one “point” is the equivalent of one percent of the loan amount paid at closing.

    Lender guaranteed settlement fees are paid to third party companies for services required by the lender. These fees vary widely from one lender to the next and include things like appraisals and inspections. Very few lenders guarantee third party charges; however, if you can talk your lender into guaranteeing settlement charges you could save yourself some money.

    There are a variety of other third party settlement fees that are not guaranteed by your lender. These charges are listed on your Good Faith Estimate; however, you can’t put too much faith in the figures listed there especially if you are refinancing your mortgage online. You can negotiate to pay fewer lender fees when refinancing by asking the total amount in dollars that you will be required to pay upfront.

    Another strategy for lowering your settlement costs when refinancing is to evaluate loan offers based on their total closing costs and choosing the lender with the lowest figures. The only problem with this is that unless the lender guarantees their fees, the figures on your Good Faith Estimate are just that, an estimate. Many lenders low-ball closing costs to make their offers look better.

    You can learn more about your mortgage refinancing options, including strategies to avoid paying too much with my free mortgage toolkit. You can sign up for free using the links at the top and bottom of this page.

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