Refinance Home Mortgage Guide

If you are considering refinancing your mortgage you might wonder what steps you should take to ensure that you get a good deal on your next home loan. Doing your homework before refinancing will not only save you thousands of dollars, but could prevent many future headaches in the process. Here are the steps you should take when refinancing to maximize your savings and avoid expensive mortgage pitfalls.

Step One: Review Your Credit Records

The first step you need to take before refinancing your mortgage is to review your credit records for errors. Because the mortgage rate you qualify for with the new loan is based largely on your credit score any mistakes found in your credit reports are going to cost you money. Congress recently passed a law requiring each of the three credit reporting agencies to provide you with a free copy of your credit report once per year. If you haven’t already been taking advantage of this credit report now is the time to get started.

You can access your credit records by visiting the website annualcreditreport.com. When you visit this site print out your credit records from all three agencies. (Equifax, Experian, and Trans Union) When printing your credit reports each agency will try and sell you a credit score or monitoring service; however, you do not need to pay for your credit score. When you apply for a new mortgage loan your broker will be able to tell you what your credit score is for free so don’t waste your money purchasing your credit score.

Once you have all three copies of your credit records you will need to carefully review these records for errors. If you find mistakes in your credit reports you will need to dispute the error with the corresponding credit agency and allow sufficient time for the correction to be reflected in your credit score before applying for a new mortgage loan. Each credit agency has a procedure for disputing mistakes in your credit files.

Step Two: Shopping for a Wholesale Mortgage Rate

Once you are confident that your credit reports are accurate you are ready to begin comparison shopping for mortgage offers. Most homeowners don’t understand that the mortgage offers you receive are for retail mortgage rates that include commission based markup. When your mortgage broker quotes you an interest rate they’ve already padded that rate to get a commission from the lender. Your lender qualifies you for a specific wholesale mortgage rate; however, for every .25% that your mortgage broker marks this rate up the lender pays a bonus of 1% of your loan amount. This commission is paid in addition to the origination fees you’re already paying for your broker’s services.

This markup of your mortgage rate for a commission is called Yield Spread Premium and is not only completely unnecessary, but is dishonest in most cases because the broker isn’t telling you what they’re doing. You can avoid this unnecessary markup of your mortgage rate by finding an Upfront Mortgage Broker that will only charge a flat fee for their services without marking up your mortgage rate.

The Upfront Mortgage Broker Association

Upfront Mortgage Brokers belong to a national association of mortgage brokers that adhere to certain ethical and professional standards. You can find out if there are any members licensed in your State by visiting the Upfront Mortgage Broker’s Association website at upfrontmortgagebrokers.org. If there is not a member in your State you can still find a broker willing to offer you wholesale rates; it will just take negotiating on your part. You can start by contacting mortgage brokers in your phone book and telling them that you understand Yield Spread Premium and will not accept any loan offer that includes this markup. Offer to pay them a reasonable origination fee for their services but do not agree to a loan that includes any form of lender paid compensation. A reasonable fee to pay for loan origination is one percent of your mortgage amount.

Step Three: Lock Your Mortgage Rate and Close on the Loan

Once your mortgage broker has agreed to refinance you with a wholesale mortgage rate you’ll need to lock in that interest rate. Make sure you get written confirmation of your rate lock from the lender and not something typed up on your mortgage broker’s letterhead. Your mortgage lender’s written rate lock confirmation will clearly show any Yield Spread Premium attached to your loan so pay close attention to this document. You should also make sure that you get the HUD-1 statement and carefully reconcile this document against your Good Faith Estimate to make sure you are getting everything you agreed to and were promised with your new mortgage. The HUD-1 statement is the final word when it comes to your new mortgage so any discrepancies on this document need to be addressed before you sign the mortgage contract. Once you are satisfied that the HUD-1 statement is accurate all you need to do close and wait for your loan to be funded.

You can learn more about refinancing your mortgage with a wholesale mortgage rate and expensive pitfalls to avoid in the process by registering for a free mortgage DVD. Sign up today, the videos are yours free with no obligation.

Finding the right person to originate your mortgage can mean the difference between refinancing with a perfect loan and making an expensive mistake. Mortgage brokers work on commission just like a used car salesman; many rely on many of the same sales tactics. Here are several tips to help you find the right mortgage broker when refinancing your mortgage.

Why You Should Refinance With a Mortgage Broker

Despite their shortcomings and reputation as sleazy salespeople, mortgage brokers have access to wholesale mortgage rates. You’ll never get access to wholesale rates refinancing with your bank or most internet lenders; only a mortgage broker can get you the lowest wholesale interest rate. The problem with mortgage brokers is that most of them will try and line their pockets at your expense.

Before you decide to refinance your home mortgage with a broker it is important to understand how mortgage brokers are compensated. Mortgage broker compensation comes from two sources: you and the lender. Your broker will charge you “origination points” for their services. This fee should not be more than one percent of your loan amount or one point. In addition to the fees paid out of your pocket mortgage brokers are compensated with a commission from the lender.

This lender kickback to your mortgage broker serves only one purpose; it’s a reward for charging you an above market interest rate. Mortgage brokers do this because the lender pays them an additional point for every quarter percent you agree to overpay. Remember that one point is always one percent of the loan amount and this kickback from the lender is paid in addition to the origination fees you’re already paying.

Avoiding Mortgage Lender Kickbacks

This kickback from your lender for overcharging you is called Yield Spread Premium and is simply the difference between the wholesale interest rate you qualified and the above market rate your broker offers you. Your challenge when refinancing your mortgage is not finding the best offer as many homeowners think, but finding an upfront mortgage broker that will work for a reasonable origination fee without charging you Yield Spread Premium.

Many Homeowners Have Never Heard of Yield Spread Premium

The majority of mortgage brokers will not admit that they’re marking up your mortgage interest rate for profit. Ask your broker direct questions about Yield Spread Premium and many will try and explain it away as a fee the lender pays. They’ll even tell you not to worry about it because the money isn’t coming out of your pocket. What your mortgage broker isn’t telling you is that Yield Spread Premium is paid as a reward for overcharging you. When confronted with this fact many brokers become defensive and angry; and why wouldn’t they? Yield Spread Premium is effectively doubling, often tripling the compensation they receive on your loan.

How to Recognize Yield Spread Premium

Mortgage brokers have clever ways of disguising and explaining away their markup. Many brokers leave Yield Spread Premium off your Good Faith Estimate entirely; however, they are required to list it on the HUD-1 statement. If this markup is include in your loans you will find it on lines 810-811 of the settlement statement. Your HUD-1 can be used to keep your mortgage broker honest; however, when shopping around for the right broker you’ll need to negotiate for one that won’t charge you this unnecessary markup.

What is an Upfront Mortgage Broker?

Upfront mortgage brokers are as the name implies brokers that disclose their fees in writing before you commit to a loan. The upfront mortgage broker works for an origination fee and will not add Yield Spread Premium to your mortgage interest rate. Conventional mortgage brokers charge “retail” mortgage rates and getting them to admit they’re the reason the mortgage rate is retail is next to impossible.

When shopping for a mortgage broker look for one that is a member of the Upfront Mortgage Broker Association (UMBA). If there are no members working in your State you can still negotiate with potential mortgage brokers to avoid paying the markup. Tell any potential mortgage brokers that you understand how Yield Spread Premium works and will not tolerate this markup of your mortgage interest rate. Tell them you will pay a reasonable origination fee for their services but will not accept any loan that includes lender paid compensation.

According to the Secretary of Housing and Urban Development Yield Spread Premium is responsible for homeowners in the United States overpaying almost sixteen billion dollars each year. You might ask how Yield Spread Premium is even legal when it is rarely disclosed and clearly taking advantage of homeowners; however, despite the raging debates in congress this unnecessary markup and fleecing of the American homeowner remains perfectly legal.

You can learn more about refinancing your home mortgage loan with a wholesale mortgage rate without overpaying with my free video toolkit. Register today, the videos are free and there is no obligation to you whatsoever.