If you are in the market for a new mortgage loan there are several things you’ll to know before refinancing in order to avoid paying too much. Researching mortgage lenders and comparing loan offers will only get you so far; understanding how loan originators markup up interest rates will help you negotiate for a wholesale interest rate when refinancing.
Home Mortgage Loan Refinancing With Wholesale Rates
What are wholesale mortgage rates? Many homeowners don’t realize their mortgage loan is a retail product and like any other retail product is marked up to make someone a profit. Mortgage interest rates are marked up to make your loan originator a profit in addition to the origination fee you’re already paying. Your loan originator could be a mortgage broker, a brick-and-mortar mortgage company in your hometown, or an Internet giant you see advertising on television.
Why Do Loan Originator Markup Your Interest Rate?
Your mortgage broker inflates your interest rate because the wholesale lender pays them a bonus for overcharging you. The broker knows the interest rate you were approved; however, for every quarter percent they get you to agree to overpay, the lender pays them a bonus of one percent of your loan amount. This truly is an incentive for overcharging you; chances are the person originating your loan will never tell you they’re doing this. Most homeowners don’t know how to recognize this markup on their loan documents and never realize it’s happening.
Home Mortgage Loan Refinancing Done Right
The best way to refinance your mortgage without overpaying is to find a loan originator that won’t markup your interest rate. This markup of your mortgage rate when refinancing has a name in the industry; the difference between the interest rate the lender approves you and the one you close is called Yield Spread Premium. Wholesale lenders make the majority of their profit by selling loans to investors on the secondary mortgage market. Loans with above market interest rates bring a premium profit and this is why they pay an incentive for loan originators to overcharge you.
Can you avoid Yield Spread Premium? Fortunately for you, homeowners that understand how loan originators markup their mortgage rates can avoid Yield Spread Premium and get wholesale home mortgage loan refinancing rates. Comparison shopping is an important part of refinancing your mortgage but it’s not enough. Just like negotiating with a car dealer over the purchase price of your vehicle, homeowners need to negotiate with potential mortgage companies and brokers to find one that will not charge you this unnecessary markup of your mortgage interest rate.
You can learn more about home mortgage loan refinancing without paying too much with our free mortgage toolkit. You can get your hands on these free videos by clicking the DVD image at the top of this page.