Home Mortgage Refinancing Guide

The mortgage quotes you receive when shopping for a new lender do not give you the actual interest rate you qualify when refinancing. The rate quotes you get are “retail” mortgage quotes that include unnecessary commission based markup. Here are several tips to help you understand how mortgage rates are quoted so you can refinance with the actual mortgage rate you qualify.

Mortgage Yield Spread Premium

The commission based markup of your mortgage rate is called Yield Spread Premium and you can avoid paying it by understanding mortgage quotes and learning how to read lender rate sheets. In order to understand how commission based markup works it is helpful to understand how mortgage brokers and other loan originators are compensated.

Mortgage Broker Compensation

Mortgage brokers are compensated for their work from two sources. You will be required to pay the broker a fee for their part in arranging your loan. This fee is commonly called an origination fee or origination points and should not be more than one percent of the amount you are refinancing. The second method is the so called “lender paid compensation,” or Yield Spread Premium. This fee is paid by the lender as an incentive for overcharging you. For every .25 percent your broker inflates your mortgage rate they receive one percent of your loan amount in lender paid compensation.

Why do lenders reward mortgage brokers for overcharging you? The majority of profit for a lender comes from selling mortgage loans to investors on the secondary market. Mortgage loans with above market interest rates bring premium profits for the lenders and this is why your broker is rewarded for overcharging you.

How Mortgage Rates Are Quoted

Every wholesale lender publishes their rate sheets by fax or online each day. Mortgage brokers use these rate sheets to quote you a rate; however, the quote you get is not based on your credit or financial details as you might expect. Your mortgage quote is based on how much the broker thinks you’re willing to pay in addition to the mortgage rate you qualified. Just like a used car salesman your mortgage broker quotes you an interest rate with their commission check in mind.

How to Avoid Yield Spread Premium

Most homeowners unknowingly agree to retail mortgage rates without knowing their broker marked up the interest rate. This amounts to paying thousands of dollars unnecessarily over the lifetime of the loan. Yield Spread Premium is a completely unnecessary fee because you are already paying a perfectly reasonable origination fee for your mortgage broker’s services. Homeowners who learn to recognize this markup can find honest mortgage brokers and negotiate to avoid paying it. This is much easier than it sounds and you can save yourself thousands of dollars refinancing with a wholesale mortgage rate.

How to Recognize Yield Spread Premium

Many mortgage brokers become defensive when asked about Yield Spread Premium. If your broker gets angry or tells you not to worry about the fee because it’s being paid by the lender you are probably dealing with a dishonest person. Tell your prospective mortgage brokers that you understand how Yield Spread Premium works and will pay a reasonable fee for their services but will not accept loan offers with this “lender paid” compensation.

Ask your mortgage broker to show you the rate sheet from the wholesale lender on the day you lock in your rate. Make sure the rate sheet comes from the lender and is not something typed up on the mortgage broker’s letterhead. If the broker refuses to show you the rate sheet or makes excuses this person is not being honest with you; find another mortgage broker that will be.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with a free mortgage DVD.

If you are in the market for a new mortgage loan and are looking for refinancing advice to get the best deal for your new mortgage, the best bit of advice I can give you is to avoid paying Yield Spread Premium on your new loan. Never heard of Yield Spread Premium? Well you are not alone; in fact most homeowners have not and it’s gotten so bad that the Secretary of Housing and Urban Development recently stated that Yield Spread Premium is responsible for homeowners in the United States overpaying sixteen billion dollars every year. Here’s what you need to know in order to avoid paying this ridiculous markup when refinancing your mortgage.

Yield Spread Premium: What Is It?

The term Yield Spread Premium or YSP sounds scarier than it really is. In fact, all Yield Spread Premium does is add markup to your mortgage interest rate to give the person originating your loan a bonus. The person “originating” your loan could be a mortgage broker, a local mortgage company in your town, or even the Internet mortgage giant you see advertising on television.

How does this markup work? When you apply for a mortgage the wholesale lender that approves your application qualifies you for a specific mortgage interest rate. Your broker knows this rate but quotes you an entirely different, higher mortgage rate.

Your mortgage broker does this because the wholesale lender pays them a bonus for overcharging you. For every.25% you agree to overpay beyond what the lender approved you, the broker gets a kickback of one percent of your mortgage amount. This “kickback” is paid in addition to the perfectly reasonable origination fee you’re paying the broker for their part in arranging your loan. A reasonable fee to pay for mortgage origination is one percent of your loan amount; although many brokers charge more unnecessarily.

If you agree, unknowingly or otherwise, to pay Yield Spread Premium when refinancing your mortgage you are doubling, often tripling, the commission your broker receives for arranging your loan. Many people think that since the lender is paying the premium and that fee doesn’t come out of their pocket they don’t need to worry about Yield Spread Premium. The problem with YSP is not the fact that this fee is being paid by the lender but the reason these lenders pay the fee. The fee is being paid because you’re agreeing to an above market mortgage rate which can result in higher monthly payments as much as several hundred dollars per month.

Why Do Lenders Pay Yield Spread Premium?

Mortgage lenders reward loan originators for overcharging homeowners because they know that mortgages with above market interest rates bring them a premium profit on the secondary mortgage market. Lenders sell their loans to investors and make the majority of their profits doing so. Your mortgage with an above market interest rate is the icing on the cake; this is why wholesale lenders offer an incentive to loan originators for overcharging people.

Yield Spread Premium Can Be Avoided

Fortunately for you, Yield Spread premium can be avoided. By learning how to recognize this unnecessary markup of your mortgage interest rate you can negotiate with potential mortgage companies and brokers to avoid paying it. You can learn more about recognizing Yield Spread Premium on your Good Faith Estimate and HUD-1 statement, including strategies to negotiate and avoid paying it, by registering for a free mortgage refinancing tutorial.

What’s a good reason for refinancing your mortgage loan? Is it always to get the lowest payment or are there other reasons for taking out a new home loan? Many people will tell you that you should “Never” refinance your mortgage unless the new mortgage rate is at least two percent lower than what you’re paying now. This is probably the worst mortgage advice in the history of bad advice.

Refinancing your mortgage could be a good idea for you if there is some financial benefit over the long term. Contrary to popular belief a lower mortgage payment may not have long term benefits, especially if you end up paying more to your lender for your financing. There are a number of perfectly good reasons for refinancing without qualifying for a lower mortgage rate. Many homeowners refinance with a higher monthly payment using a 15 year mortgage to build equity in their homes at a faster rate. Other reasons for a higher payment include borrowing against your equity to make home improvements or consolidate your high interest debts. If your current mortgage is with one of the predatory banks or mortgage lenders you’ve been hearing about in the news there’s no better reason than for refinancing than finding a reputable mortgage company.

So what should you look for when refinancing? Many homeowners obsess over mortgage rates and overlook the unnecessary fees in their Good Faith Estimate. Other homeowners don’t understand the retail nature of their mortgage interest rates and overpay hundreds of dollars every month because their mortgage interest rate has been marked up to give the broker a bonus. The mortgage industry is every bit as bad as a shady used car salesman; homeowners who take the time to do their homework before refinancing can save themselves thousands of dollars and many headaches.

Where to get started doing your homework when refinancing? The first thing you need to familiarize yourself with is Yield Spread Premium. It’s okay if you’ve never heard of this before; it’s not as scary as it sounds. Yield Spread Premium is simply the markup your broker adds to your mortgage rate to get a bonus from your lender. The problem with this markup is that you’re already paying an origination fee for the broker’s work; Yield Spread Premium really just double-dipping in your pocket…a sleazy way to make a buck.

Yield Spread Premium (YSP)

How does this mortgage scam work? Your mortgage broker qualifies you for a specific interest rate when the wholesale lender approves your loan. Most brokers will not tell you the interest rate you qualified or show you a wholesale rate sheet from the lender. Instead they mark up this interest rate based on how much they think you’ll overpay. (Sounds like a used car salesman right?) For every quarter percent you overpay for your new mortgage rate the broker gets a commission from the lender of one percent of your mortgage.

Considering that you’re already paying one percent or more for loan origination, YSP can actually double, even triple your broker’s compensation for originating your loan. Sounds like a good deal for the broker; they’ll even tell you not to worry about this fee on your HUD-1 statement because it’s being paid by the lender. The question you need to be asking is why the lender would pay this fee in the first place. Wholesale lenders make a bundle selling loans with above market interest rates to investors. Yield Spread Premium is an incentive for overcharging you, plain and simple.

Don’t be fooled by a fast-talking mortgage broker…do you really want to be making his boat payment for the next thirty years? You can learn more about refinancing your home loan without being ripped off by registering for this free mortgage refinancing tutorial.

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 market for a new mortgage loan there are several things you need to know in order to avoid paying too much. Many of these so called “secrets” are things your mortgage lender and broker don’t want you to now and certainly don’t want to talk about. Here are several of the so called industry “secrets” to help you avoid overpaying for your next mortgage loan.

Your Mortgage Broker’s Dirty Little Secrets

Mortgage brokers receive compensation for arranging your mortgage from two sources. Mortgage brokers charge you an origination fee for their services; this includes placing you with a lender, agreeing on loan terms and interest rates, and insuring the lender’s underwriter has all of the necessary loan documents and disclosure statements. A reasonable fee to pay for your mortgage broker’s services is one percent of your mortgage amount; however, many broker try and charge you as much as three and four percent.

What your broker isn’t telling you is that he or she is making money on the back end of your mortgage from the lender. Your broker marks up the interest rate you qualify for a commission from the wholesale lender. Wholesale lenders pay the broker a bonus for overcharging you because loans with above market mortgage rates bring them larger profits when your loan is sold on the secondary market.

For every .25% that your broker overcharges you on your mortgage rate the lender pays one percent of your mortgage in commission. Your broker will never tell you that they’re doing this; in fact, many brokers become defensive and even angry when questioned about Yield Spread Premium. Why wouldn’t they react angrily when Yield Spread Premium effectively doubles, even triples the compensation they receive for your loan. The problem is that while your broker may not lie to you directly, deception by omission is still a lie.

By accepting an above market mortgage rate that has been marked up by your mortgage broker you could be paying hundreds of dollars in unnecessary finance charges every month that you keep the loan.

You Can Avoid Paying Yield Spread Premium

Homeowners who understand how mortgage brokers are compensated can avoid this unnecessary markup of their mortgage rates and refinance with a wholesale interest rate. You can start by telling your mortgage broker that you understand how Yield Spread Premium works and will not accept any mortgage that includes this markup. Ask your mortgage broker to see the rate sheet from the wholesale lender and do not accept any rate sheet that appears on your mortgage broker’s letterhead.

Many brokers leave their markup off the Good Faith Estimate to make their loan offers seem more attractive. Your broker is required to list this markup on your HUD-1 statement but will try and disguise it. The Good Faith Estimate and HUD-1 statement look very similar and if Yield Spread Premium is part of your mortgage rate you will find it around lines 810-813 on these documents. You may see it called YSP, Yield Spread Premium, Premium paid to broker, or some variation but the fee will always be a percentage of your loan amount.

If you question your mortgage broker about this markup many will tell you not to worry about the fee because it’s not coming out of your pocket. The problem with Yield Spread Premium is not whose pocket this fee is coming from but the reason it’s being paid. Lenders reward brokers for overcharging you with your mortgage rate; if you accept a loan that includes Yield Spread Premium you’re paying more than you have to for your home loan.

Beware Mortgage Broker Junk Fees

There are a number of fees on your HUD-1 and Good Faith Estimate that are not charged by lenders but your broker will represent as lender fees. Take the lock fee for example. Your broker might charge you a fee for “locking in” your mortgage interest rate; however, wholesale lenders do not charge the broker a fee for locking in a mortgage rate. Other garbage fees your broker might try to pawn off on you include broker courier fees, application fees, and processing fees. If you find these fees on your Good Faith Estimate or HUD-1 statement you should confront your mortgage broker about these garbage fees.

You can learn more about your mortgage options, including costly mistakes to avoid when refinancing by registering for this free mortgage video tutorial.