If you’re considering mortgage refinancing did you know that one simple tip can save you $1200 or more each year from hidden markup and junk fees? That’s how much your neighbors are throwing away on their home loans every year. In fact, according to the HUD Secretary this hidden mortgage refinancing markup will cost homeowners in the United States sixteen billion dollars this year alone, and for no good reason. Here are several of my best mortgage refinancing tips to help you save thousands of dollars every year you’re paying on that home loan.
Mortgage Refinancing Myths
Most homeowners approach mortgage refinancing the same way they buy a major appliance. Between Google and their phonebook, they chase down mortgage refinancing quotes from a variety of local, national, and Internet companies. The problem with these quotes is that they include hidden and often undisclosed markup intended to create “extra” profit for the person, bank, or company arranging your home loan. If all the quotes you collect online include this hidden markup, comparison-shopping will only get the best of the worst home loans available.
Bank Originated Mortgage Refinancing
Many of your neighbors choose mortgage refinancing with their bank simply because it’s convenient. What you might not know about bank home loans is that your bank is exempt from the Real Estate Settlement Procedures Act (RESPA). The Banking Lobby spent millions of dollars to have the laws that protect homeowners like you from predatory lending practices changed, and they succeeded in the 1990s to exclude banks from RESPA.
Your bank is only required to give you an Annual Percentage Rate based on a fictitious Good Faith Estimate and is not required to disclose their profit margin or markup of your interest rate. This bank loophole in the laws intended to protect you from predatory lending practices is why I never recommend banks. Take a look at complaints against lenders and you’ll find the ones with the worst reputations for predatory lending practices are banks like Wells Fargo and Bank of America.
Get Wholesale Mortgage Rates
You can cut thousands of dollars from your finance charges with wholesale or par interest rates. Par simply means that your interest rate has not been marked up to create a commission known as Yield Spread Premium for the person arranging your home loan and you don’t have to pay discount points to qualify. Don’t worry if you’ve never heard of Yield Spread Premium, this lender paid compensation is the reason nearly all your neighbors are overpaying for their home loans. Simply put, Yield Spread Premium is the fee your loan originator collects for locking and closing your home loan when mortgage refinancing with a higher than necessary interest rate.
The way Yield Spread Premium typically works is that for every .25% that you unknowingly agree to overpay the person arranging your home loan collects a commission of 1% of your home loan amount. This is paid in addition to the origination fee you’re already paying this person for arranging your home loan when mortgage refinancing. This higher than necessary interest rate drives up your monthly payment unnecessarily for the entire duration of your home loan.
How do you avoid this hidden markup of your mortgage refinancing rates? Instead of shopping for the lowest rates for your next home loan like you would for that kitchen appliance, focus your energies on finding the right person to arrange your next home loan. You can find brokers willing to work for a flat origination fee of one percent without taking Yield Spread Premium on your home loan; you just have to go about mortgage refinancing the right way.
You can learn more about mortgage refinancing with wholesale rates without paying junk fees by checking out my free Underground Mortgage Refinancing Videos.
Here’s a quick sample to help you find the right person to arrange your next home loan with wholesale rates.
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.
I thought with the new rules, brokers can not increase the interest in order to get a higher commission? Can you answer this, thank you!
Hi Terri,
The only thing the 2010 changes to RESPA did was require mortgage brokers to disclose Yield Spread Premium along with their loan origination fee. (of course banks are still exempt) The broker will still tell you not to worry about Yield Spread Premium when mortgage refinancing since it's not coming out of your pocket. What they aren't telling you is why the fee is paid and what it does to your monthly payments.
Hi Robert,
Thanks for getting back to me. But you did not answer the questions. You mean still the broker can quote me 5.75% while I could of gotten 5.00%, so he/she would make an extra thousand dollars off me? They did not out law this? Thanks.
Great tips!
thanks for sharing.
That's correct Terri…banks and mortgage brokers alike mark up mortgage rates for profit and it's perfectly legal.