If you’re considering mortgage refinancing this year there are several things you need to know that will save you thousands of dollars. Did you know that according to the Secretary of Housing and Urban Development homeowners in the United States (your neighbors) will overpay sixteen billion dollars this year for their home loans? You’ll want to keep reading this article today because I’m going to share my best tips for avoiding the unnecessary markup and hidden junk fees responsible for paying too much.
Mortgage Refinancing Without Overpaying
What is this hidden markup of your home refi that I’m talking about? It all has to do with the way mortgage brokers are compensated for arranging your mortgage refinancing. Many brokers slip hidden markup into your mortgage rate after charging you an origination fee and then tell you not to worry about the lender paid compensation on your HUD-1 Statement because that fee isn’t coming out of your pocket.
The fee I’m talking about is called mortgage Yield Spread Premium. What you need to know about the fee is that lenders reward brokers for locking and closing home loans with higher than necessary mortgage rates. Your broker knows the lowest rate your lender will approve you when mortgage refinancing; however, they mark that rate up to collect Yield Spread Premium from the lender. This markup of your interest rate when mortgage refinancing is not only unnecessary because you’re paying the broker a perfectly good origination fee, but drives up your payments for the entire duration of your new home loan.
Yield Spread Premium in Action
Here’s an example to illustrate my point for the need to avoid hidden markup when mortgage refinancing. Suppose for example you decide mortgage refinancing makes sense for $375,000. Your broker quotes you an interest rate of 6.25% and charges you an origination fee of 1.5%. The loan origination fee you’re paying is for the broker’s work when mortgage refinancing; however, in this case 1.0% is more than reasonable compensation. The fact that the broker is charging you a point and a half means you’ll have to pay $5,625 at closing when you should only be paying $3,750.
What your broker isn’t telling you about his home loan and what you probably wont find in your loan documents (unless you know what to look for) is that the lender actually approved you for mortgage refinancing at 5.75% and the broker marked your interest rate up to collect 2% more. Yield Spread Premium pays one percent of your loan amount for every .25% you overpay when mortgage refinancing.
What does this hidden markup do to your payments? Well, at 6.25% your payment on a thirty-year fixed-rate home loan will be $2,308. If you had the mortgage rate you deserve at 5.75% you’d only be paying $2,188. That’s a difference of $120 per month and a whopping $1,440 every year you’re throwing away just for trusting the wrong person to arrange your home loan.
Comparison shopping for a new home loan when mortgage refinancing isn’t about comparing interest rates and fees; it’s about finding the right person wiling to work for a flat origination fee of one percent without taking Yield Spread Premium on your home loan. There are plenty of honest, hard-working brokers out there mixed in with the mortgage fat cats…you just need to find the right broker to arrange your next home loan.
You can learn more about mortgage refinancing with wholesale rates without paying junk fees by checking out my Underground Mortgage Videos.
Here’s a quick sample to show you what’s possible when refinancing your home with wholesale mortgage rates.