If you’re a homeowner shopping for the best refinance mortgage rates and not familiar with Yield Spread Premium you’ll want to read every word of this article. Learning about Yield Spread Premium and how to avoid this unnecessary markup of your mortgage interest rate will put you ahead of 97% of homeowners and save you thousands of dollars. Here’s everything you need to know about the markup that will cost homeowners nearly sixteen billion dollars this year according to the US Department of Housing and Urban Development.
How do you get the best refinance mortgage rates? Most homeowners take the approach of comparison shopping with mortgage offers until they find one with the lowest interest rate. The problem with this approach is that every mortgage offer they consider includes Yield Spread Premium which means they’re overpaying for the new loan. So what is Yield Spread Premium?
Simply put, Yield Spread Premium is the retail markup of your mortgage interest rate for a commission. Your loan representative inflates your interest rate because the wholesale lender pays them a bonus of one percent of your loan for every quarter percent they overcharge you. 97% of homeowners out there have never heard of Yield Spread Premium and don’t question the markup buried in their Good Faith Estimate or HUD-1 Statement.
Here’s an example of mortgage refinancing with Yield Spread Premium. Suppose you plan on refinancing your mortgage for $300,000. Your mortgage broker tells you that you qualify for a 6.75% fixed mortgage rate on a 30 year loan. You agree to pay the broker an origination fee of one percent, or $3,000. One percent is a reasonable amount to pay for the mortgage broker’s services; however, what your mortgage broker isn’t telling you is that you actually qualified for a 6.0% interest rate. Your mortgage broker marked your rate up to 6.75% and the wholesale lender pays them a commission of $9,000 for charging you an above market interest rate.
In this example your mortgage broker walks away with $12,000 for a few hours work and you’re stuck paying above market mortgage rates. Think I’m exaggerating in this example? Every brokered mortgage loan in the United States works this way. In fact, there’s been a debate raging in Congress for years on this fleecing of American homeowners; however, nothing’s been done and this ridiculous markup is still legal.
Best Refinance Mortgage Rates without Yield Spread Premium
Fortunately for you, homeowners who learn about Yield Spread Premium can negotiate with potential mortgage brokers to avoid paying it. You can start by telling your mortgage broker that you know how Yield Spread Premium works and will not tolerate this markup with your loan. If the broker agrees to accept a reasonable origination fee for their services you’ll be ahead of 97% of homeowners that blindly agree to pay Yield Spread Premium with refinancing. You can learn more about finding the best refinance mortgage rates without overpaying with our free mortgage toolkit. You can get immediate access to the video tuorial using the link at the top of this page.
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 am trying to get a loan of $50,000. A 30-yr fixed, or a 40-yr fixed. I am trying to get a fast and easy loan because I cannot show my income because I am disabled and get a small income. I need a good interest rate and a small monthly payment. All the loan companies I have talked to tell me I have to get a higher interest rate because of the no doc loan. And because of the small amount I am borrowing. So now they tell me I can buy the interest rate down with discount points of 4 or 5. That will cost me an additional $2,756.50 to buy it down, plus closing costs. HELP…