Did you know the person arranging your home loan refinance has a dirty little secret they’re hoping you won’t find out about? Loan originators like banks and mortgage brokers mark up their home loan refinance interest rates to make extra profit at your expense. This unnecessary commission drives up your monthly payment and leaves you with less cash in your pocket at the end of the month. Here are several tips to help you avoid paying too much for your next home loan refinance interest rate.
Home Loan Refinance Interest Rates
How do you find the best home loan refinance rates without paying junk fees or unwanted markup? Should you go with one of those mortgage websites like Lending Tree.com or just home loan refinance with your bank? The problem you’re going to encounter when refinancing your home is that nearly everyone, banks and mortgage websites alike mark up your home loan refinance rate to make an extra commission at your expense. This “extra” commission could cost you a $100 or more per month, that’s $1200 a year out of your pocket unnecessarily.
How does this unwanted markup of your home loan refinance rate work? Mortgage lenders pay a commission known as Yield Spread Premium to loan originators who lock and close home loans with higher than necessary interest rates. This is the dirty secret I was talking about. Mortgage lenders make the majority of their profits selling your home loan to investors and home loans with higher than market interest rates bring them the highest profits. This is why the system rewards brokers for overcharging you. Did you know that for every .25% you overpay the broker pockets one percent of your loan amount?
That extra .25% of your home loan refinance interest rate might not seem like much but let’s take a look at an example of what this hidden markup does to your monthly payment. Suppose you’re refinancing your home for $315,000 and the broker quotes an interest rate of 6.25% and charges you an origination fee of 2.5%. This origination fee alone means that you’ll be paying the broker $7,875 at closing for their work in arraigning your home loan. First of all, this is way too much to pay for loan origination. A reasonable loan origination fee is one percent of your loan amount, but what about this hidden markup I’ve been telling you about?
Hidden Markup Means Yield Spread Premium
What your mortgage broker isn’t telling you is that you actually qualified for a home loan refinance interest rate of 5.5%. They’ve marked up your interest rate to 6.25% to pocket a commission from the lender of 3%. That’s 1% for every .25% they’re overcharging you and the broker pockets a commission of $9,450 on top of the $7,875 you’re already paying them! That’s $17,325 for a few hours work. It’s no wonder mortgage brokers are earning themselves a reputation for being used car salesmen.
What does this unnecessary markup of your home loan refinance rate do to your payment? If you accept the inflated interest rate of 6.25% your monthly payment on a fixed rate 30 year home loan will be $1,939 per month. If you had the home loan refinance rate that you deserve at 5.5% your monthly payment would only be $1,788 per month. That’s a difference of $1,812 per year!
How to Avoid Unwanted Yield Spread Premium
Getting a home loan refinance interest rate that doesn’t include unnecessary markup for Yield Spread Premium isn’t as hard as you think. You don’t have to be a personal finance guru or have insider connections to pull it off; you just have to find the right person to arrange your home loan. Start by telling potential mortgage brokers that you understand how Yield Spread Premium works and will not accept any home loan refinance rate that includes the markup. Offer to pay a flat mortgage origination fee of one percent and when you find a broker willing to work with you you’ll be on your way to refinancing with a wholesale mortgage rate.
You can learn more about avoiding Yield Spread Premium on your home loan refinancing interest rate by checking out my free Underground Mortgage Refinancing Videos.
Here’s a short video to get you started on the path to refinancing your home with a wholesale interest rate.
Although it is possible to obtain a no-cost refinance loan from a mortgage lender, remember that lenders are in the business of making money. If the lender is not making income by charging upfront costs to make the loan, those fees are either rolled into the loan or paid through a higher-than-market interest rate.