You can’t turn on the news these days without hearing about how bad the economy is or about the recession looming on the horizon. This gloom and doom about the economy is putting many homeowners off refinancing their homes.
If you are in this situation and would benefit from refinancing your first and second to get a lower payment or just want a lower mortgage rate, there are still good deals available even if your credit is less than ideal. Here are several tips to help you refinance your mortgage during this economic recession.
Mortgage Refinancing Rates Are Still Very Low
With mortgage rates hovering just over 6% now is a very good time to refinance, especially if you are carrying a second mortgage loan with a high interest rate. Many homeowners are putting off refinancing right now because they’ve heard only one in ten mortgage applications are being approved right now. The fact is that applications are being denied not because of the homeowners credit rating but because a large number of people are actually upside down in their homes.
Being upside down means they simply owe more than their property is worth. If you have equity in your home and have a recent appraisal you should have no problem refinancing with competitive mortgage rates.
How to Shop for a Mortgage Loan
Mortgage shopping is a confusing and frustrating process for many homeowners. For many the process is a flurry of confusing documents and estimates and they never really know what they’re getting until after signing on the dotted line. Mortgage refinancing doesn’t have to be like this…you can find a good deal without getting ripped off or paying too much at closing. You just need to do your homework and learn about the one thing that causes most people to pay too much for their mortgage loans: Yield Spread Premium.
What is Yield Spread Premium?
Simply put, Yield Spread Premium is a payoff to the person arranging your loan, a percentage of your mortgage amount created by locking and closing your loan with a higher than necessary mortgage rate. This may sound confusing but it’s really quite simple. Your mortgage broker charges you a fee called an origination fee for their part in refinancing your home loan. The lender pays the broker a commission for closing your mortgage with the highest interest rate possible. This commission from the lender is called Yield Spread Premium.
How Yield Spread Premium Works
Here’s an example to illustrate Yield Spread Premium in action. Suppose for example you are refinancing your home for $225,000. Your mortgage broker quotes you an interest rate of 6.75% and charges you an origination fee of 2%. In this example you will pay the broker $4,500 for their part in arranging your loan. What your mortgage broker isn’t telling you is that you actually qualify for a mortgage rate of 6.25% and they have marked your rate up to get a commission from the lender. In this example the lender is paying the broker an additional 2% of your loan amount (1% for every .25% that they overcharge you). Your mortgage broker is walking away with $9,000 for overcharging you in this case.
Some people think that because the lender is paying the broker fee and it’s not coming out of their pockets they shouldn’t worry about Yield Spread Premium. It’s not the fact that the lender is paying this fee that should concern you; it’s why the fee is being paid. In our homeowner example above the monthly payment at 6.75% will be about $1,450 per month. At 6.25% the same loan would have a monthly payment of $1,380. That’s $840 a year out of your pocket for no good reason.
Yield Spread Premium Can Be Avoided
The good news today is that this unnecessary markup of your mortgage rate can be avoided and you can refinance your home loan without paying junk fees. Finding the right mortgage broker to work for a flat origination fee of 1% without Yield Spread Premium is not difficult if you’re willing to do your homework. Fortunately for you we’ve made this very easy with free online mortgage videos that show you how to refinance with right mortgage broker while avoiding Yield Spread Premium and junk fees. Register for the online video guide today…the tutorial is yours free with no obligation.