Mortgage Refinance Guide

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’re in the process of refinancing your mortgage online, (probably why you’re reading this today) there is one mistake that will cost you more money and give you more headaches than any other. What is this horrific mistake? The overwhelming majority of homeowners glaze over when it comes to legal agreements, terms and conditions, and disclosure statements. If you neglect to read these statements, even when doing something as simple as requesting information, you could wind paying too much for your new mortgage.

Here is a case study to illustrate my point.

Ted is a savvy guy. He’s been online for at least ten years now, graduated from college, has a good paying job, wife, two kids and a dog. He was recently promoted at the box company to supervisor position with a good pay raise. He figures the higher income would allow him to qualify for a lower mortgage interest rate, and decides to refinance his mortgage.

Because Ted’s been online for a while now he’s comfortable doing his banking online and decides the Internet would be a great way to find a new mortgage loan. He’s seen those commercials on TV about making different lenders compete for his business, and decides to check out the mega lending website to get a quote. Ted fires up his computer, visits the mega get lenders to compete website, and fills out their contact form with his personal information. Ted has just made a colossal mistake.

What Ted didn’t do was read the Licenses & Disclosure statement found at the bottom of that mega mortgages compete website. Had Ted taken a minute to read this disclosure statement he would have found that the mega lenders compete website receives a fee of up to $1,300 for “arranging” his mortgage loan. Who pays this fee? Why, Ted of course!

The disclosure statement goes on to say that if he takes out his loan from one of the lenders in the mega mortgage website’s “network” this charge of up to $1,300 will appear on his Good Faith Estimate, which Ted will have to pay at closing. Because Ted filled out the form on the website, he’s overpaid for his new loan and doesn’t even know.

Ted may be a dead head for not reading; however, the risks of refinancing without reading terms and conditions are real. Always read the terms, conditions, and disclosure statements before entering any information requesting a quote on the Internet.

If you are the in the process of refinancing your home mortgage loan, doing your homework before applying for a new mortgage will help you avoid costly mistakes. There are number ways to overpay for a new mortgage loan; the most common is unknowingly paying Yield Spread Premium with your mortgage interest rate. Yield Spread Premium is the retail markup of your mortgage interest rate by the Mortgage Company or broker originating your loan.

Your Mortgage Makeover – Avoid Yield Spread Premium

Yield Spread Premium Results in paying thousands of dollars in unnecessary interest and only serves to boost the commission of your loan originator. Another garbage fee you need to be aware of when refinancing is the computerized loan origination fee charged by many mortgage sites on the Internet. This is a fee paid to these websites for collecting your contact information. One well known mortgage site charges as much as $1,300 for their part in “facilitating” your mortgage loan. You can avoid these computerized loan origination fees by carefully reading the licenses and disclosure statements found on the mortgage site before entering your contact information.

Your Mortgage Makeover – Comparison Shop with the Good Faith Estimate

Comparison shopping with the Good Faith Estimate will provide you a better picture as to which loan offer is best suited to your needs. Many people tell you to use the Annual Percentage Rate or APR when shopping for a mortgage; however, the APR does not give you enough information to make an informed decision as to which loan is best for you. You can learn more about your mortgage options, including expensive mistakes to avoid with our free mortgage makeover video tutorial.