If you are a homeowner who purchased your home with an Adjustable Rate Mortgage now is the perfect time to lock in a comparable mortgage rate and payment amount. Fixed rate mortgage loans are currently just over five percent and can give you the peace of mind of a future-proof affordable mortgage payment. Here are several tips to help you save money and avoid paying too much when refinancing your ARM.
Mortgage Loans 101
As a homeowner in the United States there is one important lesson you need to learn about mortgage loans. This lesson is the mortgage industry’s dirty little secret and is the reason American homeowners will overpay sixteen billion dollars this year alone. What is this dirty mortgage secret you ask? It’s called Yield Spread Premium. Hold the phone…I know what you’re thinking. Yield Spread Premium? The first time I heard the term my eyes glazed over too; however, it’s not as scary as it sounds and is a fairly simple concept to wrap your head around.
Now if you’ve got an Adjustable Rate Mortgage sitting on your home your main concern for refinancing with a fixed rate loan is getting the lowest possible mortgage rate that won’t jack your monthly payment up while avoiding junk fees from the broker and lender. Sounds hard right? Don’t worry; it’s much easier than you think.
Yield Spread Premium for Dummies
So what is this Yield Spread Premium and why do you need to avoid it? Simply put Yield Spread Premium is a percentage of your loan amount created when the broker marks up your mortgage rate…think of it as a commission or a bonus…better yet a kick-back from the lender. Why do mortgage lenders pay kick-backs? They pay this money under the table because they make the majority of their money not by sitting back and collecting your payments every month but by selling loans to investors on the secondary market. Guess which loans make them the most money? You guessed it…loans with higher than market mortgage rates.
Avoiding Mortgage Rate Markup
Now that you know that your mortgage company or broker marks up your mortgage rate for fun and profit, how can you…a savvy and experienced homeowner avoid this heinous markup? All you have to do is learn to recognize the markup in your loan documents like the mortgage rate lock confirmation and HUD-1 settlement statement and you’ll be on your way to avoiding paying it. Here’s a tip: You’ll almost never find Yield Spread Premium disclosed on the Good Faith Estimate. Why is this you ask? The Good Faith Estimate is little more than a marketing tool used to make loans look attractive…most brokers leave their markup off this document completely. Scandalous you say? What is the Good Faith Estimate after all…it’s just an estimate of loan fees given in “good faith…”
Doing Your Homework Will Save You Thousands…
I know what you’re thinking…HOMEWORK?!! Egad. I’m with you…who wants to do homework when I could be off doing [insert pastime here]. The fact of the matter is that if you want the lowest possible mortgage rate and payment amount you’re going to have to work to get it. Doing your homework and learning about mortgage loans doesn’t have to be difficult and I’ve even put together a series of online mortgage videos to show you how to refinance without overpaying for your next home loan.
Best of all these money saving videos are free with no strings attached. I realize most folks are suspicious of things that are free and wonder what the catch is. No catch, really. Register your user name and password and you’ll have immediate access to the online mortgage videos and all of the materials including a list of upfront mortgage brokers in your area to get you on the right track…all this and there’s free online support available seven days a week on this website.