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Bank Refi Pitfalls to Avoid

If you’re considering a bank refi for your next mortgage there are several things you need to know about bank refi loans that could cost you thousands of dollars in hidden fees and markup. This hidden markup of your bank refi drives up your payments by $1200 a year or more! Here are several of my best mortgage refinancing tips to help avoid paying too much for your next home loan, even when considering a bank refi.

Bank Refi Secrets

The number one problem with bank refi lons that you might not know about is that your lender is exempt from laws that protect homeowners in the United States from predatory lending practices. That’s right; your bank is exempt from the Real Estate Settlement Procedures Act (RESPA) which requires mortgage brokers and lenders to disclose their profit margin and markup of your home loan. In the 1990s the Banking Lobby in the United States spent millions of dollars “lobbying” lawmakers to have RESPA changed to exclude banks and credit unions. They succeeded and as a result your bank is not required to disclose any of their markup or profit margin from your bank refi loan. You’ll get little more than an Annual Percentage Rate and Good Faith Estimate to base your decision for taking the bank refi loan.

The Problem with Annual Percentage Rate

The problem with the bank refi Annual Percentage Rate (APR) is that it is based on a Good Faith Estimate. Mortgage lenders routinely low-ball the figures on Good Faith Estimates to make their loan offers more attractive. After all, it’s just an estimate given in “good faith” right? As an educated consumer, you know what that’s worth in today’s marketplace. Another problem with Annual Percentage Rate is that while Truth-in-Lending laws require lenders to provide you with their APR there is no standard for how that APR is calculated or accountability for what it contains. The Annual Percentage Rate from one lender to the next may not include all of the costs or fees associated with locking and closing the bank refi loan. This makes it impossible to make apples-to-apples comparisons of bank refi loans when shopping for the lowest mortgage rates and fees.

Because the Annual Percentage Rate is based on a Good Faith Estimate for which here is no standard or accountability among lenders it is all but worthless for basing your decision when it comes to taking out a bank refi loan.

This is why I recommend avoiding bank refi loans completely…why would you ever considering doing business with any lender that doesn’t have to play by the rules? You see how angry people get about all of the shady dealings and kickbacks when it comes to the health care industry, if people only knew about all of the dirty dealings the Banking Lobby is responsible for they would be outraged.

What your lender doesn’t want you to know about bank refi loans is that the majority of their profits comes from selling home loans with higher than necessary mortgage rates to investors on the secondary market. Profit made this way is known to the industry as Service Release Premium. The bank knows what wholesale mortgage rates are and what you could get if only you knew better; however, they mark up your bank refi rates to collect this premium profit known as Service Release Premium.

Mortgage Broker Banks

Bank refi loans are a sure way to overpay for your home loan. When the Real Estate Settlement Procedures Act changed a number of brokers and other mortgage companies restructured their business to take advantage of the loophole. These individuals operate what are known as mortgage broker banks, meaning that they fund home loans with their own cash. By doing this, they are not required to disclose any more and overcharge homeowners like your neighbors in the same manner. How can you spot a broker bank? Ask the person arranging your home loan if they lock and close in the name of the wholesale lender or in the name of their own company. If they close in their company’s name, you know they’re operating as a broker bank, and the only reason for doing this is to take advantage of their customers. This is the direct mortgage lender lie, they want you to think that by cutting out the middleman you’re saving money, but it’s really only done to overcharge you.

You can learn more about bank refi home loans and avoiding junk fees that cost you thousands of dollars per year by checking out my free Underground Mortgage Refinancing Videos.

Here’s a quick sample to get you started that exposes another kind of hidden markup used by mortgage brokers to double, even triple their commissions at your expense.

{ 3 comments… add one }
  • Richard Behr September 19, 2010, 11:39 am

    I tried to get a refi but the bank kept losing my paperwork. Then they said no when I was laid off for a few weeks. I got behind on my payments and it was getting ugly. Helpahome stepped in, helped me through the challenge and kept my family in our home. Great people, great charity.

  • Ramin May 28, 2012, 7:57 pm

    Your going to lose more time and money shopping too much, rates are low right now. Pick an hoenst lender, then shop the rate, if it goes lower ask the lender to lower their rates. I’d advise staying away from brokers, stick with major lenders like your banks, Countrywide, Quicken Loans, DiTech etc. Get 3 quotes and go with one. Rates are low but starting to rise.

    • Robert Regehr May 29, 2012, 9:22 am

      Remember you’re not just shopping for mortgage rates, you’re shopping for the lowest fees, especially the origination fee. Overpaying for loan origination reduces any benefit you’re getting from refinancing to the point of losing money.

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