If you are a homeowner in the State of Texas considering a new mortgage loan, there are several things you need to know to avoid paying too much. Here are several tips to find the perfect lender for your Texas refinance mortgage.
The first thing you need to know about your Texas refinance mortgage is that comparison shopping will only get you a retail mortgage rate. In order to get a wholesale mortgage rate you need to negotiate with potential mortgage brokers for a loan that does not include Yield Spread Premium. If you’ve never heard of Yield Spread Premium it’s the markup the broker adds for a commission on your loan.
Yield Spread Premium 101
When you take out your new Texas Refinance Mortgage the person arranging your new loan will charge you an origination fee; one percent of your loan amount is a reasonable amount to pay for your mortgage broker’s work. Unfortunately most mortgage brokers think the work they do is worth a lot more of your money and this is where Yield Spread Premium comes in.
So what is the markup known as Yield Spread Premium? Here’s an example of how it works. Suppose you’re taking out a Texas refinance mortgage for $350,000; your mortgage broker tells you that you qualify for a 7.0% interest rate and charges you $3,500 for the origination fee. So far this loan seems like a good deal; however, what your mortgage broker isn’t telling you is that you actually qualified for a 6.5% interest rate and they marked it up for a bonus of $7,000 from the lender.
Is Your Mortgage Broker’s Work Worth $10,500?
How much time do you think your mortgage spends working on your loan? One hour, two hours, maybe three? Is their work really worth ten grand? Probably not, however, the current system allows them to pocket this much at your expense. You get a Texas refinance mortgage with an above market interest rate and your mortgage broker gets to make their boat payments.
How Not to Overpay When Refinancing
The good news for homeowners in Texas is that you don’t have to pay this ridiculous markup when refinancing. Homeowners who learn to recognize Yield Spread Premium can negotiate when shopping for their Texas refinance mortgage to avoid paying the markup. You can learn strategies for avoiding Yield Spread Premium and other common mistakes with our free mortgage toolkit.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
