If you’re considering home loan refinancing there are several things you’ll want to know to avoid overpaying for your mortgage loan. Did you know that all of the mortgage rate quotes you get online or from your local bank or broker include hidden markup? This is the reason almost all of your neighbors are throwing away thousands of dollars every year for no good reason. Here are several of my best home loan refinancing tips that blow the doors off your lender’s dirty little secret.
Home Loan Refinancing Pitfalls
Most financial gurus categorize home loans as retail products and this is somewhat true; however, you don’t have to accept retail markup of your home loan. With the exception of banks (we’ll talk about the problems with bank originated home loan refinancing in a moment) home loans come from wholesale lenders and are arranged by brokers and mortgage companies that act as retailers. At least this is what they’d like you to believe. The truth is you’re already paying that mortgage company or broker a perfectly reasonable origination fee for arranging your home loan and any markup of your interest rate when home loan refinancing to collect a commission from the lender is not only unnecessary but drives up your monthly payment by as much as $1200 a year.
How does this unnecessary markup of your interest rate work? Loan originators like your mortgage broker collect a fee known as Yield Spread Premium from wholesale lenders for locking and closing your home loan refinancing with a higher than necessary interest rate. This is the mortgage industry’s dirty little secret. Brokers and other loan originators have an incentive for overcharging you and this kickback can be quite expensive. Question your broker about Yield Spread Premium and you’ll find them on the defensive, telling you not to worry about a fee that isn’t coming out of your pocket. What your broker isn’t telling you is why the lender pays them Yield Spread Premium and what it does to your monthly payments.
The Problem That is Yield Spread Premium
The Problem with Yield Spread Premium is what this markup does to your mortgage payment. Here’s an example to illustrate my point. Suppose your home loan refinancing is for $325,000 and the broker quotes you a mortgage rate of 6.0%. You agree to pay a 1.5% loan origination fee which means you’ll pay the broker $4,875 at closing for their work. First of all, don’t get me wrong, the broker deserves to get paid for their work; however, one percent is more than reasonable in this case. In this example the origination fee should not be more than $3,250. Where this example of home loan refinancing gets ugly is what your broker isn’t telling you about the mortgage rate. Your lender actually approved you for a 5.25% interest rate; however, the broker marked it up to six percent to collect a three percent commission from the lender.
That’s right, for every .25% that your mortgage broker overcharges you the lender pays them a kickback of one percent of your home loan refinancing amount. This is the industry’s dirty little secret and what the mortgage fat cats you see tooling around in their company hummers don’t want you to know about. Sure mortgage brokers are required to disclose the fee they receive on your HUD-1 due to the 2010 changes to the Real Estate Settlement Procedures Act; however, they all have clever ways of explaining this fee way.
What about banks you ask? Can’t you avoid all this home loan refinancing nonsense by getting a new mortgage from your bank? While it’s true there is no Yield Spread Premium involved with bank originated home loan refinancing for the simple reason that the bank funds your loan, banks still markup interest rates to boost their profits in a similar manner. Throw in the fact that your bank is exempt from the Real Estate Settlement Procedures Act and not required to tell you about their markup or profit margin on your loan and this more than ample reason to avoid the bank completely when it comes to home loan refinancing.
There is good news since you’ve found this website today. It is possible to pay a flat one percent origination fee for home loan refinancing and walk away from closing with a wholesale mortgage rate. My free Underground Mortgage Videos will show you how to get a wholesale mortgage rate while avoiding all the junk fees your neighbors overlooked with their home loans. Did I mention the videos are free, no strings attached?
You can learn more about wholesale home loan refinancing by checking out my free underground mortgage refinancing videos.
The mortgage videos are quick and easy to follow…here’s a sample to help you get started trimming as much as $1200 worth of fat from your next home loan.
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.
