Home Mortgage Refinancing Guide

If you are in the market for a new mortgage loan, doing your homework before applying can literally save you thousands of dollars and many headaches. The mortgage industry has earned a reputation for sleazy sales tactics rivaling the worst used car salesman; most mortgage brokers today only care about pulling in a six figure salary regardless of who they step on. Here are several tips to help you avoid being taken advantage of when taking out a new purchase mortgage or refinancing your existing loan.

Tip Number One: Beware Bank Originated Mortgage Loans

Many people think banks and credit unions are the best places to shop for interest rates. While this can be true for savings accounts and CDs, taking out a mortgage from your bank or credit union is a very bad idea. Banks and credit unions are exempt from the Real Estate Settlement Procedure Act (RESPA) that protects homeowners from abusive lending practices by requiring mortgage lenders to disclose their profit margins and mortgage rate markup. The Banking Lobby spent millions of dollars making sure Congress excluded mortgage bankers from this important disclosure legislation; as a result your bank does not have to play by the same rules as other mortgage lenders.

Banks Charge Service Release Premium

Banks make the majority of their profit by selling mortgage loans to investors on the secondary mortgage market. Banks make the majority of this profit by charging above market mortgage rates. Your bank knows the mortgage rate you would qualify in the wholesale market; however, banks set their own rates to include the markup known as Service Release Premium. Because banks are exempt from RESPA they will never tell you how much they’ve marked up your mortgage interest rate. In fact, bank employees will often show you their rate sheets and swear their rates are not marked up. Only by comparing the bank rate sheet to the par rates charged by wholesale lenders can you see the bank’s markup. Why would you ever consider taking out a mortgage from someone that doesn’t have to play by the rules?

Tip Number Two: Mortgage Brokers Charge Yield Spread Premium

We’ve already established that mortgage bankers are evil, but what about mortgage brokers? Like your bank, mortgage brokers make the majority of their profit by marking up your mortgage interest rate. This markup of your mortgage rate is called Yield Spread Premium and is responsible for the sleazy pressure sales tactics used by mortgage brokers today. Mortgage brokers charge Yield Spread Premium because the lender pays them a bonus of one percent of your loan amount for every quarter percent they mark up your rate. Most brokers do this without telling you.

Mortgage brokers have clever ways of disguising their markup on the HUD-1 settlement statement and often leave it off the Good Faith Estimate altogether. When questioned about Yield Spread Premium many brokers become defensive, even angry, telling you that because this fee is paid by the lender and that you shouldn’t worry about it. What you should worry about is why this fee is being paid by the lender. The fee is paid because you are accepting an above market interest rate that could raise your payment hundreds of dollars each month unnecessarily. Did you know the Secretary of Housing and Urban development was recently quoted saying that homeowners overpay nearly sixteen billion dollars annually because of this markup?

How to Avoid Paying Yield Spread Premium

By avoiding this unnecessary markup of your mortgage interest rate you can refinance with a wholesale mortgage rate. Start by asking your mortgage broker what the “par” rate is and ask to see the rate sheet from the wholesale lender. Make sure the rate sheet you see is from the wholesale lender and not typed up on your mortgage broker’s company letterhead. Tell your broker that you understand how Yield Spread Premium works and will not tolerate the markup or any kind of “lender paid compensation” on your loan. It’s usually best to negotiate with a self-employed mortgage broker that owns their business as brokers working for large firms often lack the authority to make a deal like this.

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One of the best kept secrets of the mortgage industry is that your mortgage rate is marked up to give the loan originator a commission. This markup is what makes your mortgage interest rate “retail.” Most homeowners have no idea this has happened or what they can do to avoid the unnecessary markup. Here are several tips to help you recognize and avoid retail markup when refinancing your mortgage.

The mortgage marketplace consists of wholesale lenders, banks, and broker-banks. When we eliminate banks and broker-banks from our list of potential lenders due to the holes in the Real Estate Settlement Procedures Act, your ideal mortgage will come from a wholesale lender.

How does the average homeowner get a wholesale mortgage loan? Can members of the public even deal with wholesale lenders? Many homeowners think that by contacting a wholesale lender directly they’ll get a wholesale mortgage interest rate; however, when you contact a wholesale lender you are always dealing with that lender’s retail division.

Because the average homeowner does not have access to wholesale mortgage rates, we’ll have to pay a third party to get them for us. A good mortgage broker can do just this; however, the problem is that mortgage brokers are paid by commission. The loan that gives your broker the best commission is not the mortgage you want to have.

How can you refinance your home using a mortgage broker without paying too much? Homeowners who understand how mortgage brokers are compensated can negotiate with their broker to pay a reasonable origination fee without any of the originator’s markup. The difference between the mortgage rate the wholesale lender approves you and the interest rate you close with is the retail markup you want to avoid. This markup is called Yield Spread Premium and according to the Secretary of Housing and Urban Development results in American homeowners overpaying nearly sixteen billion dollars each year.

The problem with refinancing with a mortgage broker is that most brokers will not admit what they are doing with Yield Spread Premium. Questioning your mortgage broker about this markup is a lot like haggling with a used car salesman over price. Many will try and explain away this markup by telling you their compensation is paid by the lender and doesn’t come out of your pocket. This is a lie because in exchange for “lender paid” compensation you’re accepting an above market mortgage rate and higher payments for the entire duration of your loan.

If you’re upfront with potential mortgage brokers when comparison shopping you can find an honest broker that will work for a reasonable origination fee. A reasonable origination fee is one percent of your loan amount and not a penny more. Tell your potential brokers that you understand how Yield Spread Premium works and will not tolerate lender paid compensation with your loan.

How can you recognize Yield Spread Premium on your loan documents when refinancing? You can start by checking the Good Faith Estimate. The markup may or may not be listed here; however, if it’s present you’ll find it around line 810. If you can’t find Yield Spread Premium on the Good Faith Estimate your lender is required to disclose it on the HUD statement. Yield Spread Premium will always be found in the neighborhood of lines 810-811 of these documents.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid by registering for my free mortgage toolkit. The toolkit is yours free with no obligation now or in the future. You can register today by clicking the DVD image at the top of this page.

Most homeowners focus solely on finding the lowest mortgage rate when refinancing their home loans. While qualifying for the lowest refinancing mortgage rate will get you a lower payment and save you money, there are a number of other fees you should not overlook. Here are several tips to help you get the best refinancing mortgage rate without overpaying lender junk fees.

If you are looking at refinancing mortgage rates online, you’ll want to be careful to avoid computerized loan origination fees. This fee is often tacked onto your loan by the mortgage website you visited to fill out a contact form. The most notorious example of the computerized loan origination fee gone wrong is Lending Tree.

When Lenders Compete, You Lose

Mortgage lead generation sites like lending tree actually have nothing to do with mortgage loans whatsoever. Surprising? These websites have huge advertising budgets and put up a flashy website to trick homeowners into filling out their contact forms without reading the fine print. Check out the fine print on Lending Tree’s website; you’ll find it under Licenses and Disclosures.

Read this disclosure statement carefully and you’ll find that Lending Tree receives a fee of up to $1,300 for their part in “arranging” your loan. Lending Tree simply sells your information to the highest bidder on it’s “network” of mortgage lenders and collects their fee. This is a fee that appears on your Good Faith Estimate and is paid out of your pocket just because you filled out a contact form on Lending Tree’s website. The bottom line when shopping for the lowest refinancing mortgage rate online is to always read the fine print.

Avoiding YSP Can Get You A Wholesale Mortgage Rate

Another problem with finding the best refinancing mortgage rate is that most homeowners don’t know their interest rate has been marked up to give the broker a commission. Mortgage loans are considered retail products and the interest rate is what makes your mortgage “retail.” When you were approved for your refinancing mortgage rate your loan originator was given a specific interest rate for your loan; however, this person overcharges you to get a bonus form that lender.

That’s right, for every quarter percent you agree to overpay for your refinancing mortgage rate, that person gets a bonus of one percent of your mortgage amount from the lender. This bonus is paid in addition to the fees you’re already paying for their services. How can you avoid this ridiculous markup of your refinancing mortgage rate?

The difference between the refinancing mortgage rate you were approved and the one you close with is called Yield Spread Premium or YSP. If you’re upfront with your mortgage broker when comparison shopping and tell them you understand how YSP works and will not tolerate this lender paid compensation, you can negotiate for a wholesale interest rate. You can learn more about finding the perfect refinancing mortgage rate without paying lender junk fees with our free mortgage toolkit. Sign up today by clicking the DVD image at the top of this page.

If you are an Arizona homeowner concerned with rising mortgage interest rates, you might be looking to refinance your existing mortgage, especially if your current loan is an Adjustable Rate Mortgage. Refinancing can still get you a low interest rate, if you know how to negotiate for wholesale rates. Here are several tips to help you with your Arizona refinance mortgage rate.

When you hear someone talking about wholesale mortgage interest rates you might wonder what makes an interest rate “wholesale.” Many homeowners are surprised to discover that mortgage loans are retail products just like home appliances. There is always a third party retail vendor between you and the wholesale lender. This is why you pay origination fees for your mortgage company or broker’s part in arranging your loan.

Most mortgage brokers take origination fees for granted. The retail aspect of your mortgage includes the origination fee and the broker’s markup of your interest rate. Your origination fee is more than ample compensation for the mortgage broker’s work; however, this person marks up your mortgage interest rate to get a bonus from your lender. The difference between the wholesale interest rate you were approved and the mortgage rate you close with is called Yield Spread Premium.

Why do mortgage brokers charge Yield Spread Premium? Mortgage Brokers mark up your Arizona refinance mortgage rate because the lender pays them a bonus of one percent of your loan amount for every quarter percent you agree to overpay. Fortunately, Arizona homeowners can avoid paying this unnecessary markup by learning to recognize Yield Spread Premium when refinancing. You can learn more about refinancing your Arizona mortgage without paying too much with our free mortgage refinancing toolkit.

If you are in the process of refinancing your mortgage, comparison shopping can help you find a good lender; however, if you want the lowest possible mortgage rate you need to be prepared to negotiate. Most homeowners aren’t familiar with the difference between a wholesale and retail mortgage rate so here is a brief discussion about the difference. This applies only to mortgage loans funded by a wholesale lender and not your bank.

The mortgage loans that you and I receive are funded by wholesale lenders. These loans are “originated” by a mortgage company or broker in exchange for the origination fees we pay at closing. Paying your mortgage company or broker an origination fee of 1.0% of your loan amount is more than ample compensation for their services; however, they have ways of lining their pockets at your expense.

When a wholesale lender approves your mortgage application, you are approved for a specific “wholesale” mortgage rate. Your mortgage broker knows what this rate is but will mark it up because the lender pays them a bonus for overcharging you. The difference between the wholesale rate you qualify and the mortgage rate your broker offers you is called “Yield Spread Premium”

According to the Secretary of Housing and Urban Development, Yield Spread Premium will cost American homeowners sixteen billion dollars this year alone. If your goal for refinancing is to get the lowest possible mortgage rate you’ll need to negotiate to avoid paying Yield Spread Premium when comparison shopping.

When comparison shopping for a new mortgage, try and deal with the owner of the brokerage. Tell the broker that you understand how Yield Spread Premium works and will not accept any offer that includes it. Tell them you will pay a reasonable origination fee and all necessary closing costs; however, will not tolerate any form of lender paid compensation. You can learn more about refinancing your mortgage with a wholesale mortgage rate by signing up for our free video tutorial.