Despite a faltering economy it is possible to refinance your home loan, lower your monthly payment and even put cash in your pocket in the process. Here are several tips to help you refinance your home loan without paying lender junk fees or markup of your mortgage rate.
The Sky Is Not Falling
Despite what you see in the news there are mortgage loans available to qualified homeowners. The credit crisis when it comes to mortgage loans mainly applies to homeowners who are upside down with their loans, meaning that they owe more than their home is worth. If you fall into this category you will have to come up with the cash to pay your mortgage below your home’s value before a lender will approve you to refinance.
If you have suitable equity in your home, are employed, and have decent credit you will have no problem refinancing your mortgage. There are a number of things you need to know to avoid paying too much in the process, the first of which is Yield Spread Premium.
Yield Spread Premium Defined
Many homeowners have never heard of Yield Spread Premium and do not understand how the person arranging their mortgage loan is compensated for their work. Most often the person who arranges your home loan is a mortgage broker. This person works for a commission by reselling loans offered by various lenders. Brokers are compensated by charging you a loan origination fee and with Yield Spread Premium paid by the lender.
Yield Spread Premium is simply a percentage of your loan amount created when the mortgage broker locks and closes your home loan with an above market mortgage rate. Above market means you are agreeing to a mortgage rate that is higher than the lender approved you meaning your monthly payment will also be higher than it should be. Mortgage brokers do this because lenders pay them a commission of one percent of your loan amount for every quarter percent they markup up your interest rate. You might be wondering why you should care about a fee paid by the lender so here is an example of how Yield Spread Premium raises your monthly payment amount.
Yield Spread Premium in Action
Suppose you are refinancing your home and the balance of your existing mortgage is $250,000. Your mortgage broker quotes you a rate of 6.75% and charges you a two percent origination fee. Like most homeowners you agree to the terms, sign on the dotted line and go on your merry way. What really happened behind the scenes with this loan?
What your mortgage broker isn’t telling you is that you actually qualified for a 6.0% mortgage rate and they marked it up to get a commission from the lender. In this example the lender pays three percent for the .75% mortgage broker markup. Why do lenders pay this much? Consider what that additional .75% does to your monthly payment.
If you had gotten the mortgage rate you deserve at 6% on a $250,000 home loan your monthly payment on a 30 year fixed rate loan would be about $1490. Since your broker overcharged you the payment you’ll have for the duration of this fixed rate loan will be $1620 per month. That’s $130 extra that you’re paying every single month you keep this loan just to give your mortgage broker a bonus. Over the course of a year you’re flushing $1,560 of your hard earned money away.
Remember that two percent loan origination fee your mortgage broker charged you to refinance the loan? That two percent netted them $5,000 for a couple hours work out of your pocket. Add in the three percent the lender paid for overcharging you and this one loan paid the broker $12,500 for taking advantage of you.
What You Can Do About Yield Spread Premium
Homeowners who learn to recognize mortgage broker tricks like Yield Spread Premium are able to take advantage of the wholesale nature of mortgage rates and save thousands of dollars. You don’t have to be a financial guru to get wholesale mortgage rate, you just need to invest a couple hours of your time learning how mortgage brokers operate. Find the right mortgage broker to arrange your next home loan and you can not only avoid Yield Spread Premium but the other junk fees lenders and brokers slip past unsuspecting homeowners.
You can learn more about refinancing your home without Yield Spread Premium and other junk fees by registering for the free mortgage videos found on this website. Register today and as an added bonus you’ll get a list of recommended mortgage brokers in your area that work for flat origination fees without creating Yield Spread Premium. Register today, the mortgage videos are yours free with no obligation. If you have any questions about the sign up process click the chat button on the left hand side of your screen to chat with Robert.