Are you in the market to refinance your existing mortgage loan? Do you find terms like APR, Mortgage Rate, and Points confusing and misleading?
You’re not alone…most homeowners never fully understand what the Annual Percentage Rate is or how points affect their mortgage rate and closing costs. Here are several tips to help demystify mortgage loans and save you thousands of dollars when refinancing your home loan.
Annual Percentage Rate
You’ll see it listed as APR for short…but what is Annual Percentage Rate really? The Truth in Lending Act of 1974 requires lenders to disclose the costs of a loan to allow homeowners to compare loan offers. This law was supposed to make it easy to make apples to apples comparisons of any mortgage offer you’re considering; however, the problem you’ll find when comparing one apple to another is that your lender could just as easily hand you a mango that they’ve designated an apple. Here’s why.
Annual Percentage Rate is an expression of the total costs you’ll pay every year as a percentage of the loan amount. The law requires mortgage lenders to tell you what the APR is; however, there is no standard for lenders to calculate the APR or requirements that all fees and charges be listed. This means that every lender you encounter when refinancing your mortgage will have a different way of calculating the APR and may only include the lenders fees, not your broker’s origination fees and markup.
APR is a Marketing Tool
These days the Annual Percentage Rate is largely a marketing tool designed to get you into the office or on the phone to generate a lead. Most of the numbers you see are purely fictional and should not be relied on when choosing a mortgage loan. How should you compare loan offers? Shopping for a mortgage correctly isn’t a matter of comparing loan offers like you would compare a bottle of Ketchup at the grocery store. Instead of trying to find the right lender or loan, concentrate your efforts on finding the right person to arrange you mortgage and the rest will fall into place.
How to Find the Right Mortgage Broker
Finding the right mortgage broker when refinancing your home loan is easier than you think. If you look in the phone book you’ll find a lot of fancy mortgage brokers with posh offices and company hummers decked out with their company logos. Think these folks are the right people to originate your loan? Think again. Posh offices, expensive sales staff, receptionists, cappuccino makers, and company hummers cost a lot of money. These mortgage brokers have huge overhead costs to keep their businesses afloat and have minimum targets they need to bring in on each loan.
This means because of their overhead costs these mortgage brokers will never be willing or able to negotiate their origination fees or Yield Spread Premium on your loan. It’s your money but these broker’s think they’re entitled to it…someone’s gotta make that hummer payment right?
How do you find the right mortgage broker to refinance your home loan? Look for a small, self-employed mortgage broker that has been in the business for ten years or longer. Does this broker work out of their home? Even better…less overhead means these mortgage brokers will be willing and able to negotiate for your business.
You can learn more about finding the right broker to refinance your home loan without paying commission based markup of your mortgage rate or junk fees by registering for my Underground Mortgage Videos available on this website.