If you are considering refinancing your home loan with a mortgage broker, you might want to reconsider. Mortgage brokers can be an excellent resource when refinancing; however, if you’re not careful you could find yourself overpaying thousands of dollars. Here are several reasons that you might reconsider refinancing your home loan with a mortgage broker.
I. Mortgage Brokers Are Paid by Commission
Mortgage brokers make a living by commission and the loan that nets them the largest commission is probably not the best loan for you. If you don’t fully understand the loan you are getting you could find yourself with a risky interest-only or option Adjustable Rate Mortgage that you can’t afford.
II. Mortgage Yield Spread Premium
In addition to pocketing the origination fees you pay when refinancing your loan, the mortgage broker marks up your mortgage interest rate to receive a bonus from the wholesale lender behind your loan. That’s right, for every .25% you agree to pay above the mortgage rate you qualified, your mortgage broker pockets a bonus of 1% of your loan amount. Your broker does this without telling you, and the markup is buried deep in your mortgage’s disclosure statement. This markup of your mortgage interest rate is called Yield Spread Premium and if you pay it you’ll overpay thousands of dollars for your new mortgage loan.
III. Used Car Salesman Mentality
Because mortgage brokers are paid by commission and incentivized by Yield Spread Premium, most are more interested in pulling down a six-figure salary than they are helping you find a decent mortgage. I’m not saying that every mortgage broker out there would swindle your Grandparents out of their Social Security check; however, many of them would. There are no criminal background checks required before getting a mortgage broker’s license and nearly anyone can past a test to become one. If you absolutely have to work with a mortgage broker when refinancing, for example if you have bad credit, you’ll have to watch your broker like a hawk to avoid overpaying.