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How to Shop for a Mortgage Broker When Refinancing

home-loan.jpgMost homeowners know very little about how mortgage brokers are compensated for their work.

They assume that the origination fee listed on their Good Faith Estimate is the broker’s commission for the home loan; however, what you don’t know about mortgage broker fees could cost you a lot of money.

Here are several tips and questions to ask potential brokers to help you find the right professional to refinance your home loan.

The mortgage industry in the United States has a dirty little secret known as Yield Spread Premium. Mortgage brokers are very good at explaining away this fee as “lender paid” compensation; in other words it’s not coming out of your pocket so don’t worry about it. The problem with Yield Spread Premium, which is a percentage of your loan amount created when the broker locks and closes your home loan with an above market interest rate, is that it really is costing you money…thousands of dollars in unnecessary finance charges every year that you’ll pay as long as you keep that loan

Yield Spread Premium is a Lie

Your mortgage broker pockets a commission from the lender for marking up your mortgage interest rate. Sure this is listed on the HUD-1 statement as a “broker rebate” but if your broker doesn’t tell you they’ve marked up your interest rate for cash it’s still a lie of omission. Your mortgage broker receives one percent of your loan amount for every quarter percent they overcharge you. This “rebate” is paid in addition to any origination fees or mortgage broker fees you’re already paying.

Mortgage Refinancing Done Right

Another problem faced by the majority of homeowners refinancing their mortgages is that they don’t know what a good deal looks like. The ideal transaction between a homeowner and a mortgage broker is a loan with zero Yield Spread Premium, no garbage fees, and a one percent origination fee. Think that this sounds too good to be true? It’s not if you know how to find the right mortgage broker to originate your loan.

Questions to Ask Your Mortgage Broker

Before you agree to anything with a mortgage broker there are several pointed questions you need to be asking:

  • 1. Are you the owner of your company? (it’s always easier to negotiate with a mortgage broker who is self employed and runs their own business)
  • 2. How long have you been originating mortgages? (ten years or longer)
  • 3. What is your closing percentage? (you want 90% or better)
  • 4. What is your percentage of compensation including Yield Spread Premium?
  • 5. Will you originate my loan yourself? (looking for a yes here)
  • 6. Will you accept a one percent origination fee without Yield Spread Premium? (this is a deal breaker, if the answer is no, move on to the next broker)
  • 7. Will you provide me the wholesale lender’s lock confirmation when I decide to lock my mortgage rate? (another deal breaker…needs to be yes)
  • Honest mortgage brokers willing to work for a one point origination fee do exist and finding a broker like this will save you thousands of dollars and countless headaches when refinancing your home. You can learn more about getting a wholesale mortgage rate while avoiding lender junk fees by registering for my free mortgage video tutorial.

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