If you are considering purchasing your home or refinancing an existing home loan, Yield Spread Premium is something you’ll unknowingly encounter that could cost you thousands of dollars per year in unnecessary mortgage interest. You can avoid hidden markup of your mortgage rate once you learn how to recognize and negotiate Yield Spread Premium. Pay attention, the following discussion will literally save you thousands of dollars every year and help you find the best mortgage deals on your next home loan.
Yield Spread Premium Definition
Yield Spread Premium (YSP) is a fee paid by mortgage lenders for home loans that are closed with higher than necessary mortgage rates. The amount of the fee depends on how much you overpay. Mortgage companies and brokers typically get one percent of your mortgage amount for every .25% you agree to overpay for your home loan. Most of the time the mortgage broker will not tell what they’ve done and brokers go to great lengths to hide their markup of your mortgage rate in your loan documents.
How Does YSP Result in Overpaying?
The example I’ll use to illustrate Yield Spread Premium has to do with Refinancing Home Mortgage loans but applies also to purchase loans. Suppose you are in the market to refinance your home loan for $305,000 and your mortgage broker quotes you an interest rate of 6.75%. What your broker isn’t telling and doesn’t want you to find out is that you actually qualified for a mortgage rate of 6.0%; however, they’ve marked up your rate for Yield Spread Premium (YSP) from the lender.
Not only is the lender paying your mortgage broker this fee for overcharging you, adding insult to injury your broker is charging you a fee for the privilege of being ripped off. This loan origination fee is all you should be paying for the mortgage broker’s services and you should only agree to pay one percent of your home loan amount, and not a penny more.
In this example your monthly payment on a $305,000 thirty year, fixed rate mortgage at 6.75% will be $1,980 per month. If you had the interest rate you could have refinanced with at 6.0% your mortgage payment would only be $1,820 per month. That’s $1,920 you’re throwing away every year because your mortgage broker overcharged you! The good news is that this unnecessary markup of your mortgage rate can be avoided.
How to Avoid Yield Spread Premium (YSP)
You can save yourself a lot of money by refinancing your home loan paying just a flat one percent origination fee without Yield Spread Premium. Instead of shopping for your next home like everyone else, think of finding the right person to arrange your next mortgage rather than shopping for the “perfect” rate quote. If you’re thinking the right person to arrange your next mortgage is actually your bank, think again. Banks don’t offer the kind of deal I’m describing here due to a loophole in the Real Estate Settlement Procedures Act. They’re simply not required to tell you about their markup or profit margin on your loan. They don’t have to play by the same rules as other mortgage lenders so why would you expect them to give you competitive rates? Banks prey on homeowners that just don’t know better.
How to Find the Right Mortgage Broker
Finding the right mortgage broker to arrange your next mortgage isn’t difficult. Start by telling mortgage brokers you approach that you’re willing to pay a reasonable fee for loan origination but will not accept any mortgage that includes Yield Spread Premium. Your best bet for finding the right person to arrange your next mortgage is to find a self-employed mortgage broker. Large firms employ sales staff with expensive overhead and will simply be unwilling or unable to negotiate the kind of deal that doesn’t include Yield Spread Premium (YSP).
You can learn more about saving money when mortgage refinancing by avoiding junk fees and Yield Spread Premium by registering for my Underground Mortgage Videos. Here’s a sample of what you’ll get when you sign up:
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