If you’re in the market for a new home loan and want the best refinance mortgage around, there are several things you need to know about the rate quotes you’re getting. Shopping for a new home loan is very similar to shopping for new kitchen appliances; everyone’s trying to make a buck at your expense. Here are several tips and one dirty secret to help you find the best refinance mortgage without paying unnecessary fees and markup.
Best Refinance Mortgage Fees & Markup
Would you know how to spot the best refinance mortgage if you found it? The problem with most loan offers is that they’re laced with unnecessary fees and markup. Home loan interest rates are routinely marked up to create an extra commission for the person arranging your home loan. This unnecessary markup of your interest rate creates a fee for the loan originator known as Yield Spread Premium, the dirty little secret of the home loan industry. You’re already paying your loan originator a perfectly reasonable origination fee for the work they do on your home loan, why should this person get a kickback, and yes Yield Spread Premium is a kickback, for marking up your interest rate?
Yield Spread Premium is an incentive for lenders and brokers to overcharge their customers, plain and simple. For every .25% that your broker overcharges you this person receives a kickback from the lender of one percent of your loan amount. That’s on top of the origination fee you’re probably already overpaying. (A reasonable loan origination fee is one percent and not a penny more.) Lenders reward loan originators for overcharging homeowners because home loans with higher than market rates bring them a premium profit when these loans are sold on the secondary market and is the reason most of your neighbors overpay for their home loans.
How to Avoid Unnecessary Markup
Getting the best refinance mortgage isn’t as difficult as you might think. You don’t have to be a personal finance guru to get a good deal; you just need to find the right person to arrange your next home loan. Who’s the right person? I can tell you it’s not going to be your banker. Thanks to a loophole in the Real Estate Settlement Procedures Act you’ll never get a wholesale rate from your bank. You can get wholesale rates, despite what many mortgage brokers will tell you. A wholesale interest rate, also called a par rate is simply one that hasn’t been marked up to create Yield Spread Premium for the loan originator and you don’t have to pay discount points to qualify. You’ll pay that flat origination fee up front; however, isn’t paying the origination fee at closing better than paying an unnecessarily higher payment for as long as you keep the loan?
If you want the best refinance mortgage possible local brokers are the way to go. You want to find a self-employed broker that doesn’t work for one of those large nationwide companies. The reason is these small time brokers don’t have the overhead expenses that come from employing expensive sales staff and working out of posh office spaces. A local, self-employed broker is going to be much more likely to negotiate the type of deal you’re looking for and get you the best refinance mortgage.
You can learn more about getting the best refinance mortgage without paying unnecessary fees by checking out my free Underground Mortgage Videos.
Here’s a short video that explains why nearly all of your neighbors overpay for their home loan and how you can benefit from their mistakes.