If you’re scouring the earth for the lowest refinance rates you might wonder if you should be dealing with your bank, an internet giant like Amerisave, or enlisting the services of a mortgage broker. There are many options for your next home loan ranging from local credit unions to independent bankers and they all seem to quote different amounts for lender fees and services. Here are several tips to help you find the right person to arrange your next home loan with the best combination of the lowest refinance rates and fees.
Should You Focus On Getting The Lowest Refinance Rates?
Shopping for the lowest refinance rates is not only a pain in the neck but requires a lot of legwork. Big banks like Bank of America and Wells Fargo used to be a fast and convenient but these days you’re looking at a 90+ day backlog on your refi.
One of the most common mortgage mistakes is focusing only on getting the lowest refinance rates at the expense of fees. The problem with refinance rate shopping is that it’s difficult to make apples-to-apples comparisons of multiple lenders, especially when they’re trying to hard sell you.
Once you get past loan officer pitches the question becomes can the lender get the job done or will it drag out for six months?
This is where recent recommendations from friends and neighbors come in handy about their experiences refinancing with lender XYZ. There are a lot of un-reputable mortgage lenders and brokers out there that not only abuse their customers with fees but do not complete the transaction with any sense of urgency whatsoever. If you choose a lender like this you could miss out on snagging that low refinance rate.
Mortgage rate shopping is a lot of work but the payoff could save you thousands of dollars from unnecessary fees AND get you a lower payment amount.
If you’re short on time and patience when shopping for refinance rates one shortcut is to use a mortgage broker as a middleman between yourself and potential banks and lenders. Instead of interviewing 25 mortgage companies, banks and credit unions the broker can do that legwork for you.
Think of your mortgage broker as your personal home loan shopper, with loads of industry contacts and access to programs and offers the average Joe would never know about. The down side is that mortgage brokers don’t work for free and the ones that tell you that the lender pays their commission need to be treated with a healthy dose of skepticism.
Can Your Mortgage Broker Get You a Better Deal?
If you’ve done any amount of shopping for refinance rates you might find that banks and “direct” mortgage lenders offer lower rates than independent bankers and mortgage brokers. Refinance rates get confusing when banks and lenders quote discount points and varying fees in their offers. If you want the best deal for your next home loan you should investigate all your options before choosing any one lender.
Mortgage brokers are a useful tool for vetting offers that include unnecessary discount points and junk fees for a cost. How much is reasonable to pay for the mortgage broker fee? One percent for the loan origination fee is standard but you may be able to negotiate to pay less. I’ve personally reviewed small community-based credit unions that charge as little as $400 for the loan origination fee so shopping around for a broker is also important.
What about those brokers that claim the lender is paying their commission? What could possibly wrong with having someone else pay the broker’s commission? The problem with these “slick” offers is that while it’s true the lender is paying the broker commission, the reason they’re paying it is because you’re accepting higher not the lowest refinance rates. Yield Spread Premium was never outlawed as some homeowners incorrectly believe and is alive and overcharging your neighbors to this day.
The only thing that changed when it comes to Yield Spread Premium (YSP) is that the broker cannot charge you the origination fee AND accept lender paid compensation. It has to be one or the other.
There’s no easy answer to argument of Banks vs. Mortgage Brokers because your answer will depend on your individual situation, the market and whether or not you’ve found a good, trustworthy mortgage broker.
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You can learn more about getting the lowest refinance rates without paying unnecessary fees or markup by checking out my Free Underground Mortgage Videos.
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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.
