If you’re in the market for a new mortgage loan or are thinking about refinancing your existing home loan, you might be considering taking out the mortgage loan from your bank. While it’s true that bank mortgages are a convenient way of taking out a home loan, if you want the best mortgage rates and lowest mortgage payment there is a very compelling reason for avoiding banks. Here are my best mortgage tips to help you avoid paying too much for your next home mortgage loan.
Best Mortgage Rates
Shopping for a mortgage loan is a confusing process for many homeowners. Most people just compare mortgage rates from their bank with a couple mortgage companies out of the phone book thinking that the biggest banks and lenders offer better deals. This might be true for products from the Wal-Marts of the world, when it comes to mortgage loans this mindset will cause you to overpay thousands of dollars.
Mortgage rates, especially those from your bank do not work like other retail purchases you make, buying a plasma television for example. You would think Bank of America, Wachovia Bank, and Wells Fargo Mortgage would offer discount mortgage rates because they are high volume lenders; however, this is simply not the case.
Home mortgage rates, it doesn’t matter if they’re from a wholesale lender or any bank, are not like other consumer products. There is no volume discount when it comes to home loans so it makes no difference if you take out a home loan from a mortgage giant like Wells Fargo Mortgage or the mom and pop mortgage company in a small town. This doesn’t mean that both types of lenders, large corporate giants and small time mortgage brokers alike, don’t have overhead costs that include marketing, office spaces, and the occasional company hummer. (Trust me on this point…you do not want to work with any mortgage company or broker you see tooling around in a hummer with their face and logo splattered all over it.)
Mortgage Rates Are Investment Driven
The mortgage markets do not behave like other retail markets when it comes to supply and demand. When demand is low mortgage rates typically go up…unlike supply and demand of physical products. This is because mortgage rates typically follow the yield, which is return on investment, in the bond markets. When the bond yields are low, which usually corresponds to bad economic news like the current recession, mortgage rates go down. When the bond yields are high mortgage rates go up because the demand of investors affects long term interest rates like what you pay on a 30 year fixed rate mortgage. It’s next to impossible to try and time the market when it comes to mortgage rates. Your energies are best spent shopping for the right person to arrange your next home loan rather than trying to predict when mortgage rates are going up or down.
What You Need to Know About Bank Mortgage Rates
Banks are not wholesale lenders nor do they offer their customers wholesale mortgage rates. Bank mortgage rates are set by the bank and if you’re willing to pay for a bank mortgage loan you’re welcome to take their rate or leave it…no negotiating. You would think that your bank has to be competitive with wholesale lenders in order to remain competitive in the marketplace; however, that’s not how banks operate when it comes to mortgage loans. Banks rely on the fact that most homeowners don’t understand how mortgage rates work to drive their profits, taking advantage of most people’s lack of knowledge. Most people fall victim to the notion that bigger is better when it comes to mortgage loans, a notion that results in overpaying thousands of dollars more often than not.
One of the biggest problems with bank originated mortgage loans is that your bank is exempt from the Real Estate Settlement Procedures Act and is not required to disclose any of their profit margin or markup on your loan. All the bank is required to disclose to you is an Annual Percentage Rate that they base on a Good Faith Estimate that has all of the fees low-balled to make the overpriced home loan seem more attractive.
Banks don’t offer wholesale mortgage rates to their customers because the bank makes most of their profit when your loan is sold to investors on the secondary market. Your bank may continue to service the loan after they sell it meaning you’ll never know the fast one your bank pulled on you. The profit your bank makes from selling your loan with a higher than market mortgage rate is called Service Release Premium. If you never shop from a wholesale mortgage source such as an honest mortgage broker you’ll never know how much the bank is overcharging for their mortgage loans.
If you want the lowest possible mortgage rate to purchase or refinance your existing home loan you’ll need to get a wholesale mortgage rate which is also known as a par mortgage rate. This means you can’t shop for the “best mortgage” lender or bank, you’ll have to shop for the right person to arrange your next home loan to get a wholesale mortgage rate.
You can learn more about finding the right person to arrange your next home loan so you can take advantage of wholesale mortgage rates while avoiding unnecessary mortgage junk fees by registering for my free underground mortgage refinancing videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
