Mortgage refinancing can be a confusing process for many homeowners. Mortgage loans are retail products like the appliances in your kitchen and refinancing is not so much choosinig a lender as picking a loan originator. Here are several tips to help you find a loan originator that won’t take advantage of you when refinancing your mortgage.
What is a Mortgage Loan Originator?
Your loan originator is the person arranging your loan and handling the paperwork. This person could be a mortgage broker, loan officer at the bank, or a representative at a mortgage company. Finding the right person to originate your loan will make the difference between getting a good deal and making an expensive mistake.
Who should you choose to originate your mortgage? You can scratch the loan officer at your bank off the list right away, and for good reasons. Banks are exempt from the Real Estate Settlement Procedures Act that protects homeowners by requiring lenders to disclose their profit margin and markup on your loan. Because banks are not required to play by the same rules as other lenders you’ll never know how much they mark up mortgage interest rates.
If we eliminate banks, you have the choice of refinancing with a traditional mortgage company or a broker. Mortgage brokers have access to wholesale mortgage interest rates and an honest broker is more likely to refinance your mortgage with a wholesale rate than a mortgage company representative. The downside of working with a mortgage broker is that these individuals are paid by commission and giving you a wholesale interest rate doesn’t yield the best commission.
What Are Wholesale Mortgage Rates?
Wholesale mortgage rates come from wholesale lenders. Your loan originator is what makes mortgage rates “retail.” Loan originators mark up mortgage rates because the lender pays them a commission of one point for every quarter percent you agree to overpay. Suppose you qualified for a 6.0% mortgage rate but your broker quotes you 6.5%. If you agree to this loan your originator pockets two percent of your loan amount on top the origination fees they’ve already charged you.
Yield Spread Premium is Unnecessary Markup
The difference between the wholesale mortgage rate you were approved and the rate you close after markup is called Yield Spread Premium. This unnecessary markup of your mortgage interest rate only serves to boost your broker’s commission at your expense. Many brokers try and explain away Yield Spread Premium as “lender paid fees,” telling you not to worry about it because it’s not coming out of your pocket. Don’t fall for these lies; you’re agreeing to an above market interest rate and it is coming out of your pocket.
You can learn more about refinancing your mortgage with a wholesale rate with my free mortgage tutorial. Simply click the DVD image at the top of this page to get started today, free with no obligation.
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.
