Did you know that nearly all of your neighbors are currently paying too much for their home loans? Do you want the lowest home mortgage refinancing rates but don’t want unnecessary markup and junk fees? Refinancing your home is a lot like buying a used car and there are plenty of people out there trying to make a buck at your expense. Here are some of my best tips for avoiding the mortgage fat cats when refinancing your home loan that could save you as much as $1200 per year.
Unnecessary Mortgage Rate Markup
Did you know that the quotes you get online and over the phone all include markup to make a profit for someone at your expense? This is in addition to any origination fee you’re already paying this person for arranging your home loan. The good news is that you can avoid this unwanted markup of your home loan interest rate and lower your monthly payment allowing you to keep more cash in your pocket at the end of the month. Before we get to that I need to explain a little more about this markup of your home loan interest rate.
Mortgage Yield Spread Premium
Yield Spread Premium is a fee paid by your lender to the person arranging your home loan for locking and closing your mortgage with a higher than necessary mortgage rate. I say higher than necessary because your lender approved you for a specific interest rate; however, this person arranging your loan marked it up to receive Yield Spread Premium from the lender. The problem with this markup is twofold: first it drives your monthly payment taking more cash out of your pocket. Second, you’re already paying this person a perfectly good origination fee for their services, yet they’re taking advantage of you by collecting this fee from your lender.
Most of the mortgage fat cats will tell you since this fee is being paid outside of closing by the lender and isn’t coming out of your pocket that you shouldn’t worry about it. The problem isn’t the fact that the fee isn’t coming out of your pocket but why it’s being paid and what it does to your payment. Here’s an example to illustrate my point.
Yield Spread Premium in Action
Suppose for instance that you’re refinancing your home loan for $275,000. Your broker quotes you a mortgage rate of 6.5% and charges you a loan origination fee of 2%. This means that you’ll be required to pay $5,500 in origination fees at closing for the broker’s work on your home loan. Don’t get me wrong, brokers should get paid for their work, just not by taking advantage of their customers. Keep in mind that a reasonable fee to pay for loan origination is 1% of your home loan amount so this mortgage broker is overcharging your for the origination fee.
If you agree to refinance your home with these terms your monthly payment on a 30 year, fixed rate home loan would be $1,738 per month. What your mortgage broker isn’t telling you is that you actually qualified for a 5.75% interest rate and they marked it up to 6.5% to collect Yield Spread Premium. If you had gotten the home loan you deserve at 5.75% your monthly payment would only be $1600 a month. That’s a savings of $1,656 per year! The good news is that you can avoid this unnecessary markup of your home loan interest rate AND you don’t have to be some kind of financial guru to pull it off.
You can learn more about avoiding the mortgage fat cats when refinancing and getting a wholesale mortgage rate for yourself by checking out my free Underground Mortgage Videos.
Here’s a sample of what you’ll get today you register for my free password protected member’s area. This short video is about the Yield Spread Premium your mortgage broker tries to slip past you when refinancing your 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.
Great information. We need to educate the consumer about the yield spread. What percent of borrowers do you think have heard about the yield? My guess is 10% or less.
There should be a law requiring the originator to disclose all fees to both the lender and the borrower. Furthermore, there should be a cap on the fee an originator charges on a mortgage. A cap at 3.5% is reasonable in my opinion.