You’re in the market to refinance and you want the lowest mortgage rates for your next home loan right? Interest rates may be advertised at five year historical lows but that doesn’t mean you’ll walk away from closing with the lowest mortgage rates. Did you know that loan originators jack up their lowest mortgage rates to pocket a commission from the lender while lacing your home loan with junk fees? Here are several of my best mortgage tips to help you find the lowest mortgage rates without throwing your hard-earned cash away on junk fees and unnecessary markup.
Lowest Mortgage Rates Online
Google makes it easy to find mortgage quotes from dozens of lenders in a hurry. The problem with these quotes is that they all include markup intended to generate a commission for the person arranging your home loan. Don’t get me wrong, there’s nothing wrong with the person behind your mortgage getting paid for their work. The problem is that you’re already paying this person a perfectly reasonable origination fee AND they’re helping themselves to a commission from the lender at your expense.
The Mortgage Industry’s Dirty Little Secret
You’ve just stumbled on the mortgage industry’s dirty laundry. Did you know that mortgage lenders reward brokers and other loan originators with a fee for overcharging you? That’s right, for every quarter point that you agree to overpay the person arranging your loan pockets a whopping one percent of your home loan amount. This is on top of the one percent plus you’re already paying them for setting up your mortgage, all the while thinking you’re getting the lowest mortgage rates. How does this heinous markup of your mortgage rate work? It’s a pretty simple concept to wrap your head around and learning to recognize it will save you thousands of dollars.
Yield Spread Premium in Action
The mortgage fat cats have a term for the fee collected for the unnecessary markup of your lowest mortgage rates. They call it Yield Spread Premium. Basically, any loan originator that locks and closes home loans with higher than necessary interest rates can collect Yield Spread Premium. Sure, changes to the 2010 RESPA laws require them to disclose Yield Spread Premium with their origination fee; however, the shady ones have clever of ways explaining it away. They’ll tell you not to worry about this fee since it’s not coming out of your pocket and the fact that lender is paying it is keeping your costs down.
Poppycock! Don’t you just love that word? People don’t use it enough in everyday speech. What your broker isn’t telling you is why lenders are paying this fee and what it does to your monthly payment. Lenders reward loan originators with Yield Spread Premium because they know that home loans with higher than necessary interest rates bring them a premium profit when your loan is sold to investors. Your broker doubles, even triples their commission and you get stuck paying extra every month. Here’s an example to illustrate my point.
Case Study: Overpaying for Your Home Loan
Here’s an example of what you don’t want to do when trying to refinance with the lowest mortgage rates. Suppose you’re refinancing your home for $315,000. Your broker quotes you a rate of 5.25 percent and charges you 1.5 percent for loan origination. This means you’ll fork over $4,725 at closing when you should only be paying one percent or $3,150 for the origination fee. At 5.25 percent on a thirty-year fixed rate mortgage your payment will be $1,740 per month.
What the scoundrel isn’t telling you is that you actually qualified for a mortgage rate of 4.75 percent. Your broker marked up the lowest mortgage rates to pocket two percent of Yield Spread Premium from the lender…that’s $6,300 more on top of the $3,150 you’re already overpaying him. Ready to get angry? If you had the mortgage rate you deserve your payment would only be $1640 per month. That’s $1200 you’re throwing away every year…$1200 cash you could be using for other things.
The good news today is that you can avoid this unnecessary markup of your lowest mortgage rates without overpaying the origination fee or throwing your money away on junk fees.
Here’s a sample from my free Underground Mortgage Refinancing Videos that shows you step-by-step how to pay less for your next home loan.
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.
