Looking for the best refinance mortgage loan but are worried about paying junk fees? Little known junk fees and markup can quickly turn your best refinance mortgage into a sour deal unless you know how to avoid paying them. Here are several tips to help you get the best refinance mortgage possible without overpaying like nearly all of your neighbors.
Best Refinance Mortgage Online
Rate quotes on the web are easy to find; everyone claims to have the lowest rates but how do you know which rates have been marked up for the broker’s commission and what about those junk fees? Most of your neighbors make the mistake of allowing the broker to markup up their interest rate for broker fees rather than paying the origination fees up front. Some of your neighbors didn’t even know the broker marked up their interest rate and paid the origination fee also. How can you avoid making the same mistakes your neighbors made? It starts by understanding how brokers and other loan originators are paid for arranging your home loan.
Mortgage Broker Compensation
There are several ways the person arranging your home loan is compensated for their work. It doesn’t matter if the person is a broker, an online mortgage site, or even your bank. Most loan originators charge a flat loan origination fee for their part in arranging your home loan. The loan origination fee can be as high as three percent with some brokers, even more; however, a reasonable amount to pay for the loan origination fee is one percent of your loan amount assuming the broker isn’t marking up your interest rate as well.
What About Mortgage Rate Markup?
Most people don’t know that brokers, banks, and other loan originators markup your best refinance mortgage to boost their profits at your expense. Agreeing to pay a higher than necessary mortgage rate means your monthly payment will be higher than it needs to be by as much as $1200 per year, even more in some cases. Here’s an example of how this mortgage broker “scam” works.
Suppose you’re refinancing your home for $225,000 and your broker quotes you an interest rate of 6.0%, charging you an origination fee of 1.5%. The origination fee alone will cost you $3,375 at closing; however, what your broker isn’t telling you is that you qualified for a 5.5% mortgage rate and they marked it up to 6.0% to get a second commission at your expense. This second commission is called Yield Spread Premium and this year according to the Secretary of Housing and Urban development will cost homeowners in the United Sates sixteen billion dollars unnecessarily.
Brokers and other loan originators have a knack for explaining away this fee. They’ll tell you since your lender pays the fee you shouldn’t worry about it…after all it’s not coming out of your pocket right? Wrong. The fact of the matter is that this unnecessary bump in your mortgage rate drives your monthly payment up and that IS cash out of your pocket. Here’s an example to illustrate just how much cash.
The Effects of Yield Spread Premium on Your Best Refinance Mortgage
Getting back to our previous example of refinancing your home for $225,000 at 6.0% your monthly payment on a fixed 30 year mortgage would be $1,350 per month. If you had the interest rate that you should have gotten your payment would only be $1,277. That’s a savings of $876 per year! Is saving that much money on your next home loan worth 45 minutes of your time to get your best refinance mortgage? Check out my free Underground Mortgage Videos and you’ll discover how to avoid unnecessary Yield Spread Premium and junk fees on your next home loan.
You can learn more about finding the best refinance mortgage without paying Junk Fees with my free Underground Mortgage Videos.
Here’s a short video that’ll show you how to avoid unnecessary markup of your interest rate and other junk fees lenders use to boost their profits at your expense.
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.
