Home Mortgage Refinancing Guide

Cash out mortgage refinancing is a less expensive option for tapping into your equity than home equity lines of credit or second mortgages. Here is the basic definition of a Cash Out Refinance.

Suppose for example, your home is valued at $350,000 and you owe $150,000 on your existing 30 year, fixed rate mortgage. It is possible for you to borrow as much as 90% of your home’s Loan-to-value ratio (LTV). This means you could borrow as much as $315,000 when cash out refinancing and put $165,000 in your pocket.

There are closing costs and some fees you’ll be required to pay when refinancing; also, because you are borrowing against the equity in your home you’ll get a higher mortgage rate than if you weren’t taking cash back at closing. There are also other considerations you’ll need to keep in mind when considering cash out refinancing. Because your mortgage rate will be higher when you take cash back, any amount of Yield Spread Premium on your loan will raise your monthly payment amount unnecessarily.

Yield Spread Premium is the unnecessary markup of your mortgage interest rate for the person arranging your mortgage loan. If you’re not already familiar with how Yield Spread Premium works, here is a simple example to illustrate how it drains your wallet unnecessarily. Suppose you are borrowing $350,000 to refinance your home mortgage. The broker quotes you a mortgage rate of 6.5% and charges you a loan origination of 2.0%.

In this example you will be required to pay your mortgage broker $7,000 at closing for their part in arranging your loan. What you don’t know is that you actually qualified for a 6.0% mortgage rate and the broker marked it up to get a commission from the lender…on top of the $7,000 you’re already paying them! Your monthly payment at 6.5% on this loan will be $2,213. If you had the mortgage rate you deserve at 6.0% your payment would only be $2,090. That’s a difference of $1,476 you’re overpaying every year!

The good news for you is that Yield Spread Premium can be avoided when refinancing your mortgage. You can learn more about this and avoiding lender junk fees by registering for the free mortgage videos available on this web site.

The mortgage industry has a dirty little secret that according to the Secretary of Housing and Urban Development will cost homeowners in the United States sixteen billion dollars this year alone. If you haven’t learned how to avoid this dirty mortgage secret you’re already paying too much. Here are several tips to help you avoid overpaying for your next mortgage loan.

Yield Spread Premium

The dirty secrets revealed today pertain to Yield Spread Premium (YSP). Most people have never heard of YSP and do not understand how their mortgage broker is compensated for arranging their mortgage.

Why is Yield Spread Premium a dirty mortgage secret? The majority of the time you will never know that the broker is marking up your mortgage rate. This markup is frequently charged on top of the origination fee you’re already paying for the broker’s work. Here’s an example to illustrate Yield Spread Premium in a typical refinancing transaction.

Suppose you are refinancing your home loan for $325,000 and the broker quotes you a mortgage rate of 6.75%, charging you 2% for the origination fee. If you agree to this fee you’ll pay $6,500 at closing for the broker’s part in arranging your loan. A reasonable fee to pay for loan origination is 1% of the loan amount…you’re already overpaying and we haven’t even gotten to the sneaky part.

Dirty Mortgage Secrets Revealed

What your mortgage broker isn’t telling you is that you qualified for a 6% mortgage rate and they’ve marked it up to create Yield Spread Premium. This percentage of your loan amount goes right in the mortgage broker’s pocket at your expense. For every .25% that the mortgage broker marked up your rate they receive 1% of your loan amount. In this example the broker is paid an extra 3% for overcharging you. In addition to the $6,500 you’re overpaying for the broker’s work the lender is paying $9,750 for charging you an above market interest rate.

What does this higher than market mortgage rate mean for you? Paying 6.75% interest on a $325,000 mortgage means your monthly payment will be $2,100 per month. Had you refinanced with the mortgage rate you deserved your payment would have been $1,940 per month. That’s $1,920 out of your pocket every year that you’re paying unnecessarily! There is good news for you today…you can avoid this unnecessary markup of your mortgage rate. You can learn more about refinancing your mortgage without overpaying by registering for my free video tutorial: mortgage secrets revealed.

Mortgage closing costs are fees including loan origination fees, underwriting fees, loan processing fees, discount points, title charges and a host of others…some legitimate, others garbage. The closing costs you will be required to pay when refinancing your mortgage are any fees paid to the mortgage broker or any third party company like the title company or your appraiser.

There are other administrative fees that come out of your pocket at closing like any unpaid interest or escrows that are a part of the cash you need to close and are not actually a part of your actual closing costs.

You can pay your closing costs several different ways. Writing a check at the title company is the most common method when purchasing your home. You have the option of including these costs in your loan amount in many cases when refinancing your mortgage. The problem many homeowners are aware of but not sure what to do about is simply knowing which closing costs are necessary and which fees are destined for the mortgage broker’s pocket…

While closing costs are fairly straight forward and you cut the fat once you know what to look for, there is another “junk fee” that many homeowners overlook altogether. If you’re a regular reader of this blog you’ll know that I am referring to Yield Spread Premium.

Mortgage brokers mark up your mortgage rate because the lender pays them a bonus for overcharging you…of course this happens most frequently without your knowledge. The good news for you is that this unnecessary markup of your mortgage rate and the commission it creates known as Yield Spread Premium can be avoided, saving you as much as thousands of dollars each and every year that you keep your home loan. You can learn more about avoiding Yield Spread premium by registering for the free mortgage refinancing videos found on this website.