Claiming to offer the lowest mortgage rates is how most lenders market their loans today. They all claim to have the best rates…why then is it so difficult to compare mortgage offers when refinancing your home loan? The problem with getting the best mortgage rates is the rate one lender calls “lowest” isn’t the lowest rate from another lender for a homeowner in your situation. This is why mortgage shopping can get so frustrating…no one wants to overpay and who can you trust to get you the best mortgage when refinancing?
Wholesale Mortgage Lenders
With the exception of bank originated loans, mortgage loans are funded by wholesale lenders. These wholesale lenders don’t deal with the public directly but offer their loans through mortgage companies and brokers. Banks don’t rely on wholesale lenders to fund their loans because bank originated mortgage loans are funded with the bank’s money, creating a unique problem if you’re trying to get low rates refinancing with your bank. (More on that problem later)
Different wholesale lenders offer different mortgage rates on any given day…some lenders will want a larger spread meaning mortgage brokers and companies quoting mortgage loans from these lenders will have higher rates on any given day than others. Picking and choosing wholesale lenders when shopping for a mortgage isn’t something you can do directly; however, you can choose the mortgage broker originating your loan when refinancing your home.
Get The lowest Refinance Mortgage Rates
You can control how much your mortgage broker or retail Mortgage Company is making off your interest rate when they originate your home loan. This is as simple as picking who you choose to do business with when refinancing…you see, the wholesale lender makes money from your mortgage rate and the retail mortgage company or broker makes money by marking up your mortgage rate. It doesn’t matter if you are refinancing your home with a mortgage company, bank, or a mortgage broker…they all mark up mortgage rates for profit.
The money your mortgage broker makes by marking up your rate is called Yield Spread Premium. When a bank makes their profit from a spread on your mortgage rate it’s known as Service Release Premium. The lowest mortgage rate available on any given day is directly influenced by how much your originator is making off this spread. The lower your mortgage rate, the less spread and the less your originator makes on the transaction. It is possible to get a mortgage rate that hasn’t been marked up…this zero spread mortgage rate is called a Par mortgage rate…meaning it doesn’t cost you points to get and that it does not create Yield Spread Premium for the originator. (Quick side note…banks do not offer par mortgage rates to their customers…ever. If you want par you’ll have to find the right mortgage broker to arrange your loan)
Origination fees also affect your mortgage rate. If your mortgage company or broker is not charging you an origination fee for arranging your loan you can be sure they are marking up your mortgage rate in order to collect a fee from the mortgage lender. This drives your monthly payment up unnecessarily and will cost you more in the long run…it’s almost always better to pay a one percent loan origination fee instead of taking a higher mortgage rate. Many brokers market loans that don’t include origination fees because this figure is often high and causes sticker shock. As a result many mortgage companies and brokers lowball fees in their loan offers to avoid this…making effective comparison shopping difficult if not impossible. If you want the lowest possible mortgage rates and want to save money in the long run, bite the bullet and pay your origination fee and closing costs up front. Doing so will save you thousands of dollars over the life of your home loan.
How to Shop for a Mortgage Loan
What’s the best way to shop for a mortgage loan? Should you call every mortgage company in the phone book to get a quote or should you go somewhere like Lending Tree to get your quotes? Lending Tree’s motto is something about getting lenders to compete for your business and you’ll win, right? Did you know they’re being sued because all of the lenders they quote you are from mortgage companies they own? Not a lot of competition there huh? Sites like Lending Tree are also notorious for computerized loan origination fees, a junk fee you shouldn’t have to pay.
When you’re shopping for a mortgage loan the best way to shop is not to focus your energy comparing loan offers but concentrate on finding the right person to arrange your next mortgage loan. The right person for your next home loan isn’t going to be the loan officer at your bank or most of the mortgage brokers you find in the phone book. Most mortgage brokers rely on Yield Spread Premium to boost their commissions paying for expensive offices, sales staff, and even company hummers. If your mortgage broker drives a company hummer with their logo and/or face plastered all over it don’t walk…run and find another mortgage broker.
Self employed mortgage brokers are often the best for getting you the lowest mortgage rates. These brokers don’t have expensive overhead and are more likely to negotiate a mortgage that doesn’t include Yield Spread Premium, junk fees, or excessive origination fees.
You can learn more about finding the right mortgage broker to arrange your next home loan by checking out my free Underground Mortgage Videos. Register today and you’ll get immediate access to this mortgage refinancing guide and discover how to cut hundreds of dollars from your payment every month.
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.
