If you are in the market to refinance your mortgage there are several expensive pitfall you’ll want to avoid. Mortgage refinancing can save you thousands of dollars if you go about it the right way. Here are several tips to help you refinance your mortgage without paying too much to your broker or lender. Finding the right lender makes the difference between getting a great mortgage loan and making an expensive mistake. There are several types of lenders you can choose from when refinancing. You have the option of refinancing your mortgage with your bank or credit union, a mortgage broker, internet lender, or a broker-bank.
Types of Mortgage Lenders
Each type of mortgage lender has advantages and disadvantages. Refinancing your mortgage with a bank or credit union can be a fast and convenient method of securing a new mortgage; however, if you refinance with your bank you’re guaranteed to overpay for that loan. The reason for this is that your bank is exempt from the Real Estate Settlement Procedures Act; this legislation protects homeowners in the United States from abusive lending practices by requiring lenders to disclose their markup and profit margin on your loan.
The Banking Lobby spent millions of dollars ensuring that your Bank doesn’t have to play by the rules. Banks routinely markup mortgage interest rates to boost their profits when the loan is sold to investors on the secondary market. This markup of your mortgage interest rate is called Service Release Premium and because the bank is exempt from the Real Estate Settlement Procedures Act, the bank is the only one that will ever know how much you’re being overcharged.
Never refinance your home mortgage with a bank or a broker-bank. Broker-banks are simply banks pretending to be mortgage brokers. How can you tell if the company you’re considering for mortgage refinancing is really a bank or broker-bank? Ask your loan representative if they close in the name of their own company or the name of the wholesale lender. If the answer is that your mortgage is closed in the broker or mortgage company’s name you’re actually dealing with a bank pretending to be a mortgage broker.
Refinancing With a Mortgage Broker
Mortgage brokers have the advantage of accessing wholesale interest rates for their customers. The problem with refinancing your mortgage with a mortgage broker is that these individuals are paid by commission and the more they mark up that wholesale interest rate the higher their commission will be. The difference between the wholesale mortgage rate your lender approves you and the rate you close with is called Yield Spread Premium.
Avoid Yield Spread Premium and Get a Wholesale Mortgage Rate
Homeowners who learn to recognize the unnecessary markup of their mortgage interest rate can refinance with wholesale rates and save thousands of dollars. This is true if you are refinancing with a local mortgage broker or one you contact on the Internet. Because you’re already paying a perfectly reasonable origination fee for the broker services, any amount of Yield Spread Premium charged by the broker is not only unnecessary but is completely taking advantage of you.
Be Careful With Internet Mortgage Sites
You might be tempted to visit one of the big mortgage sites you see advertising on television like Lending Tree. Many homeowners are surprised to discover that sites like Lending Tree have absolutely nothing to do with mortgages and make money by selling leads to lenders and brokers. While there’s nothing wrong with sites involved with lead generation, RefiAdvisor for example is funded by lead generation, sites like Lending Tree take advantage of their users by charging them a ridiculous “Computerized Loan Origination Fee.”
If you visit Lending Tree’s website and click on their “Licenses & Disclosure Statement” you’ll find that lending tree receives a fee of up to $1,300 for their part in “arranging” your loan. This fee appears on your Good Faith Estimate and you’ll be required to pay it when closing on your loan. What does lending tree do for $1,300? Aside from collecting your personal information and selling it to the highest bidders in their network, Lending Tree does absolutely nothing.
You can learn more mortgage refinancing tips to help save you money and avoid being taken advantage of by your lender with my free mortgage toolkit. You can get started today free with no obligation by registering using the link at the top of this page.