If you’re in the process of refinancing your home mortgage you might be scouring the web in search of the “Top Mortgage Company.”
Should you worry about finding the top mortgage company when refinancing your home loan or should your focus be on finding the right person to arrange your loan?
Mortgage rates have never been lower and now is the perfect time to refinance your home loan; however, there are a number of missteps that could turn that sweet mortgage rate into a lemon you’ll be paying for years to come. Here are several tips to help you avoid paying too much for your next mortgage loan.
Who is the Top Mortgage Company?
The simple answer to this question is there isn’t one. There’s a lot of bad mortgage companies out there that you’ll need to avoid; however, there is no “best” mortgage company… here’s why. Mortgage lenders fall into three categories. First there are wholesale lenders who do not deal with the public directly but offer their loans through mortgage companies and brokers. Second, there are banks and credit unions that fund mortgages with their bank’s money and do not offer wholesale rates to their customers. The third type of lender is what’s known as a mortgage broker bank. This is a mortgage broker or company that funds loans with their own money in order to exploit a loophole in the Real Estate Settlement Procedures Act that allows them to conceal their profit margins and markup of your mortgage rate. You don’t want to deal with broker banks and I’ll tell you in a bit how to recognize if you’re dealing with one of these.
Should You Refinance With Your Bank?
Banks might be a convenient way of refinancing your home loan; however, there is a very good reason for avoiding bank mortgage loans. What could be more convenient than an automatic transfer from your checking account to your mortgage every month? The problem is banks don’t play fair when it comes to home loans. In the United States there is legislation that protects homeowners from predatory lending practices known as the Real Estate Settlement Procedures Act which requires mortgage companies to disclose their markup and profit margin on your home loan. Disclosure is a good thing right? Your bank doesn’t think so…
The Banking Lobby spent millions of dollars lobbying congress to have the Real Estate Settlement Procedures Act changed so banks and credit unions are excluded from the law…and they succeeded. Because of this loophole the bank is not required to tell you how much your mortgage rate has been marked up to generate a profit when the bank sells your home loan on the secondary market. They can charge whatever they like and don’t have to disclose anything to you. This is why you’ll never get anything remotely close to a par mortgage rate if you take out a mortgage rate from your bank or credit union.
What’s a par mortgage rate anyhow and how do you get one? Par mortgage rates should be what you’re aiming for whenever taking out a mortgage loan. A par rate is simply one that doesn’t cost you anything to get in the form of discount points or one that creates a commission for the person or company arranging your loan from Yield Spread Premium.
More on Yield Spread Premium later but let’s get back to mortgage broker banks. When the banking lobby had the law changed excluding banks from the Real Estate Settlement Procedures Act a number of mortgage brokers in the industry wanted a piece of the action and found a way to exploit the same loophole enjoyed by banks today. Mortgage brokers found that if they created a company and funded home loans with their own capital they were not required to disclose their markup or profits on your loan. These broker banks can charge people whatever they like without worrying about disclosure laws… just like a bank.
How can you tell if the person or company you’re working with is operating as a mortgage broker bank? Ask them if they will be closing your new mortgage loan in the name of a wholesale lender or in the name of their own company. If the answer is that they close loans in their company’s name then you know you are dealing with a broker bank and should move on with your search for the “Top Mortgage Company.” Oh wait a minute…we’re not focusing on finding the “Top Lender” are we? We’re looking for the right person to arrange your next home mortgage loan…
How to Find the Right Person to Arrange Your Next Mortgage Loan
Who is the right person to work with when refinancing your home loan? We already know that banks, credit unions, and mortgage broker banks take advantage of their customers by exploiting a loophole in the Real Estate Settlement Procedures act so that leaves mortgage brokers that offer loans exclusively from wholesale lenders, but not just any broker. Mortgage brokers are basically salespeople that offer mortgage loans from wholesale lenders for a commission. If you want to avoid overpaying when working with a mortgage broker you need to understand how brokers get paid for arranging your loan.
How Your Mortgage Broker Gets Paid
Mortgage brokers get paid for their work in two ways. Your broker can charge you a fee known as a loan origination fee, also called origination points, which will appear on your Good Faith Estimate and HUD-1 Statement. By the way, the Good Faith Estimate (GFE) these days isn’t worth the paper it’s printed on… your GFE is little more than a marketing tool to get you to commit to an overpriced mortgage loan. Pay close attention to your HUD-1 Settlement Statement as this is the final word legally when it comes to what you’ll pay for your mortgage.
The second way mortgage brokers get paid is from a fee or commission paid by the lender. Should you care if the lender pays your mortgage broker a fee? It’s not coming out of your pocket right? It isn’t the fact that your lender is paying the broker a commission that should concern you but why the lender is paying your mortgage broker this fee. Brokers get paid by the lender for locking and closing home loans with higher than necessary mortgage rates. This fee created when the mortgage broker closes your mortgage with too high a mortgage rate is called Yield Spread Premium and it drives your monthly payment up unnecessarily.
Avoiding the commission based markup of your mortgage rate should be your number one priority when refinancing and is the subject of my Underground Mortgage Videos streaming to you online from this website. Yield Spread Premium can cost you thousands of dollars per year in unnecessary mortgage interest and the way to avoid it is by refinancing with the right mortgage broker.
You can learn more about refinancing your home loan with the right mortgage broker while avoiding Yield Spread Premium and other junk fees by registering for my Underground Mortgage Videos. Register today, the videos stream to your PC or Mac without downloading anything.