If you are considering a new mortgage to refinance you California home, comparison shopping can save you a lot of money if you do it correctly. Before evaluating loan offers you need to have a discussion with potential mortgage companies and brokers regarding Yield Spread Premium. The high cost of California real estate severely magnifies the problem of Yield Spread Premium and could result in overpaying thousands of dollars each year.
If you’re not already familiar with Yield Spread Premium when it comes to California mortgage loans, here’s a quick introduction. Yield Spread Premium is the markup of your mortgage interest rate by your broker for a commission. When your application to refinance your California mortgage is approved, you qualify for a specific mortgage rate from the wholesale lender that approved your loan. Your mortgage broker knows the rate you qualified; however, this person marks it up without telling you because the wholesale lender pays them a bonus for overcharging your.
That’s right, for every .25% you overpay for the loan your mortgage broker receives 1% of the loan balance in addition to the origination fees you’re already paying. Factor in the high cost of homes in California and a quarter percent becomes a lot of money. This is money you have to pay month in and month out for as long as you keep the loan.
How do you avoid Yield Spread Premium when refinancing your California mortgage? The first discussion you have with a potential mortgage broker needs to be about Yield Spread Premium. Tell your mortgage broker that you understand how it works and will not tolerate the markup with your new mortgage. Tell your mortgage broker that you will pay a reasonable fee for the origination of your California mortgage and all necessary third party settlement costs but will not accept lender paid compensation. Any honest mortgage broker would agree to these terms. Once you’ve found an honest California mortgage broker you are ready to begin comparison loan offers to find the perfect mortgage for your situation. You can learn more about refinancing your California mortgage loan by registering for our free mortgage tutorial.