Are you shopping for a new home loan and want to know the best way to compare mortgage refinance rates?
It might surprise you to know that the Good Faith Estimates you receive when shopping for a new mortgage are little more than marketing tools used to lure homeowners into high priced loans. How can you best compare mortgage refinance rates while avoiding costly junk fees?
Here are tips to help you avoid paying too much when refinancing your home mortgage loan.
How Not to Compare Mortgage Refinance Rates
Most homeowners rely on two things when shopping for a new home loan: the loan’s Annual Percentage Rate and Good Faith Estimate. I’ve mentioned that the Good Faith Estimate is unreliable when used as a tool to compare mortgage refinance rates; this is due to a shortcoming in disclosure laws that require mortgage lenders to provide you that Good Faith Estimate, but have no standards for what should be included. Your mortgage lender is free to disclose whatever they like on the Good Faith Estimate because it is simply an “estimate give in good faith.”
What about the mortgage Annual Percentage Rate or APR? This figure is supposed to give you the total cost of taking out a mortgage expressed as a yearly percentage of your loan amount. Again, much like the Good Faith Estimate your lender is required to publish Annual Percentage Rate for all of their home loan offers; however, there are no standards for what fees they are required to include in their calculations. Annual Percentage Rate is just another tool in your mortgage lender’s marketing arsenal.
How to Best Compare Mortgage Refinance Rates
There is a better way to shop for a home loan when refinancing your mortgage. Instead of shopping for a mortgage loan like you’re buying a bottle of ketchup, focus your energy on finding the right person to arrange your next home loan. You don’t need to bog yourself down comparing mortgage rates and fees, you just need to focus on two key elements of the mortgage broker’s compensation and the rest will fall into place.
People might tell you that mortgage brokers are crooks and you should avoid them all together when refinancing your home. Why not just refinance with your bank and not have to worry about broker fees all together? While it’s true that bank mortgage loans are convenient, I mean what could be easier than automatically transferring your mortgage payment from your checking account every month? There is one glaring problem with bank originated mortgage loans that you should know about.
The Real Estimate Settlement Procedures Act
Before we get into the best way to compare mortgage refinance rates there are a few things you need to know about disclosure laws in the United States that protect homeowners from predatory lending practices. The laws I’m referring to are known as the Real Estate Settlement Procedures Act (RESPA) and require mortgage brokers to disclose their markup and profit on your home loan. Sounds good right? The problem is that your bank and credit union are exempt from RESPA thanks to the Banking Lobby. These lobbyists spent millions of dollars getting Congress to change the laws that protect you from abusive mortgage loans so that your bank and credit union don’t have to play by the rules. That is the reason you should never take out a mortgage from your bank or credit union… you’ll never get anything close to a par mortgage rate.
What Are Par Mortgage Rates?
I talk about par mortgage rates on this website a lot because this should be your goal when you compare mortgage refinance rates. Simply put, a “par mortgage rate” is one that does not cost you any money to get and a mortgage rate that does not create an extra commission for the person arranging your home loan. When I say this is a mortgage rate that doesn’t cost you anything that means you don’t have to pay points up front to qualify for that rate. Remember a “discount point” is one percent of your loan amount that you have to pay at closing to get a certain mortgage rate. As for this “extra commission” I am of course talking about Yield Spread Premium. Don’t sweat it if you don’t know what Yield Spread Premium is, I’ll cover this in great detail later. In a nutshell it’s an extra commission paid to your mortgage broker for locking and closing your home loan with a higher than necessary mortgage rate. Think of it as a bonus paid to the mortgage broker for overcharging you.
This isn’t to say that your mortgage broker shouldn’t be paid for the work they do arranging your home loan. On the contrary, this is what the mortgage origination fee you’ll find on your Good Faith Estimate covers. Your mortgage broker deserves to be paid for the work they do like anyone else and a reasonable fee to pay for their services is one percent of your loan amount. What your mortgage broker should not be doing is padding their commission at your expense and this is exactly what Yield Spread Premium does to your home loan.
How to Find the Right Mortgage Broker
So how do you find the right person to arrange your home loan when you compare mortgage refinance rates? Does the right mortgage broker work for a large firm with an expensive sales staff and advertising budget? What about those mortgage brokers you see driving company hummers around town with their company logos splashed all over them? I can tell you from experience that because of their overhead, these mortgage brokers will be unable or unwilling to negotiate the kind of deal when refinancing that will give you a par mortgage rate, just like your bank.
Who is the right mortgage broker for the job? Look for a small time, self-employed mortgage broker working from home. These mortgage brokers have little overhead and for the most part will be honest, hard working professionals you can count on to get you a good deal when refinancing. This doesn’t mean you should blindly trust what your mortgage broker is telling you about their loan offers. There are several key points you’ll need to focus on when you compare mortgage refinance rates to make sure you’re not overpaying.
You can learn more about the best way to compare mortgage refinance rates while avoiding Yield Spread Premium and other junk fees by registering for my Underground Mortgage Videos. Register today and you’ll get instant online access without downloading anything to your personal computer.
Here’s a sample of what you’ll learn, this module is called “Your Mortgage Lender Has a Dirty Little Secret.”