If you are in the process of refinancing your home and are searching for information about mortgage rates there are several things you need to know about the rate quotes you receive. Most homeowners don’t realize that 90% of the rate quotes they receive from mortgage brokers and on the Internet include commission based markup included to make someone money from your loan. Understanding mortgage quotes and learning to recognize this markup will help you avoid paying too much for your next mortgage loan.
Today’s 30 Year Fixed Rate
The 30 year fixed mortgage rate has been creeping up slightly to 6.0%. This rate does include Yield Spread Premium which is intended to give a commission to the person arranging your loan. Yield Spread Premium by itself is not necessarily a bad thing; only when it is abused could you wind up paying hundreds of dollars a month unnecessarily.
What is Yield Spread Premium?
Yield Spread Premium is a percentage of your loan amount created when the mortgage company or broker arranging your loan locks and closes with a higher than market interest rate. Suppose your lender approves you for a mortgage rate of 6.0% but the broker closes you at a higher rate of 6.5%. This creates .5% of Yield Spread Premium and brings the broker a commission of 2% of your loan amount. Did your mortgage broker overcharge you? It depends on how your loan was structured and whether or not the broker told you they were marking up your mortgage rate.
Brokers are compensated in two ways. They can charge you an origination fee for their part in arranging your loan or receive compensation from the lender with Yield Spread Premium. If the broker is charging you an origination fee for their services a reasonable fee to pay is 1-1.5% of your loan amount. Mortgage brokers typically receive one percent of your loan amount for every .25% your loan closes about the interest rate offered by the lender. If this is paid in lieu of an origination fee or used to pay your closing costs Yield Spread Premium can be a good thing; however, it is often abused when the broker charges you an origination fee and pockets Yield Spread Premium without your knowledge.
You can learn more about refinancing your home loan without paying too much in broker fees including ways to recognize and avoid lender junk fees by registering for my free video tutorial.
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.
