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Home Loan Refinance Mistakes

Looking for the lowest home loan refinance for your next mortgage but don’t want hidden markup or junk fees? Did you know that most of your neighbors paid too much for their home loan refinance because they didn’t recognize hidden markup of their mortgage rate? Here are my best tips for avoiding overpaying for your home loan refinance and putting cash back into your pocket from your current mortgage payment.

Home Loan Refinance Online

The Internet’s great for any home loan refinance; however, what most homeowners don’t know about the quotes they find online is that they all have hidden markup built in. This markup serves no purpose other than to create an extra commission for the person arranging the mortgage at your expense. This hidden markup means your monthly mortgage payment could be a hundred dollars or more than it needs to be; quickly draining thousands of dollars from your bank account in just a few short years.

How does this hidden markup of your mortgage rate work? Mortgage lenders reward loan originators with a fee known as Yield Spread Premium for locking and closing your home loan refinance with a higher than necessary interest rate. The broker won’t tell you they’re doing this and the fee is often cleverly disguised in your Good Faith Estimate and HUD-1 statement. Even if you find the fee most brokers explain it away by telling you not to worry about it since the fee isn’t coming out of your pocket. The point is not that you’re not paying this fee but what the fee does to your monthly payment…here’s an example to illustrate my point.

Yield Spread Premium in Action

Suppose the lowest home loan refinance you can find on a $275,000 mortgage is 6.25 percent. Your broker charges you 1.5% for the loan origination fee, even though one percent is perfectly reasonable. What your broker isn’t telling you is that you actually qualified for a 5.5 percent mortgage rate and they marked it up to 6.25 percent to get a 3 percent commission from the lender on top of the 1.5 percent origination fee you’re already overpaying. What does this unnecessary markup do to your payment? Your payment on a 6.25 percent fixed rate home loan for 30 years will be $1,693 per month. If you had the mortgage rate you deserve at 5.5 percent your payment would only be $1,560 per month. That’s a savings of $1,596 per year!

The good news is that you don’t have to be a personal finance guru to get the kind of deal I’m describing here. You simply have to find the right person to arrange your home loan refinance. When it comes to brokers local and self-employed are the way to go. These brokers will be much more likely to negotiate the kind of home loan refinance we’re discussing here because they don’t have the operating expenses of national chains. How can you find the right broker for your next home loan refinance?

Start by telling potential brokers that you understand Yield Spread Premium and will not accept any home loan refinance that includes the markup. Offer to pay a reasonable free for loan origination of one percent and you’ll be well on your way to refinancing your home loan with a wholesale mortgage rate that doesn’t include this unwanted markup.

You can learn more about getting wholesale mortgage rates for your next home loan refinance with my free Underground mortgage videos.

Here’s a quick sample that spills the beans about your mortgage broker’s dirty little secret…

{ 2 comments… add one }
  • Jessica June 25, 2010, 5:20 pm

    I agree with you that many people commit same mistakes regularly in terms of finance.This could lead to serious losses if not checked regularly.Theses tips you have provided here are very useful as well as logical. After all profit is very important.Thanks a lot for providing these useful tips on refinance.You are really very helpful.

  • Ben July 15, 2010, 6:15 am

    Great points.

    YSP is not something everyone knows about and educating yourself can really help you save a lot of money.

    To me a good loan officer deserves to make 2-2.5% commission. But if they are trying to rake in 3-4% using the ysp. Find another loan officer.

    A good loan officer should explain the ysp and show you how it can work for you. Either by getting a lower interest rate or by lowering your fees.

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