If you are considering refinancing with a mortgage broker, negotiating with your broker is an important part of choosing the right loan for your situation. Here are several tips to help you negotiate with mortgage brokers and avoid overpaying for your next mortgage.
Before choosing a mortgage broker you need to make sure that person is really a mortgage broker and not a broker-bank. What’s a broker-bank? Mortgage broker-banks are simply banks pretending to be mortgage brokers. Banks do this to exploit loopholes in the Real Estate Settlement Procedures Act (RESPA) that requires mortgage lenders to disclose all of the markup and fees associated with their loans. Banks and broker-banks are exempt from RESPA laws and do not have to tell you how much they mark up your mortgage interest rate. Never take out a mortgage from your bank or from a broker bank.
How can you tell if your mortgage broker is a broker and not a broker-bank? Ask them if they close on your mortgage in the name of the wholesale lender. If they close on your mortgage in the name of their own company, they are a broker-bank and you should scratch that mortgage broker off your list. Once you’ve determined your mortgage broker is not a broker-bank, tell your mortgage broker you will pay 1-1.5% of your mortgage amount for origination fees, a reasonable processing fee, (your processing fee should not be more than $400) and all necessary third party fees but zero markup of your mortgage interest rate. This markup of the mortgage rate by your mortgage broker is called Yield Spread Premium and the broker does this to get a bonus from the wholesale mortgage lender.
If your mortgage broker agrees to these terms, ask this person to see the lock sheet from the wholesale mortgage lender and compare it to the rate lock given to you by the mortgage broker. If you find a mortgage that meets your needs and does not include Yield Spread Premium you’ve avoided 90% of the mistakes homeowners make when attempting to negotiate with mortgage brokers.
You can learn more about your mortgage options including costly mistakes to avoid by checking out my free Underground Mortgage Videos.