If you are in the process of refinancing your mortgage, a wholesale mortgage lender can save you thousands of dollars. Many homeowners refinance with their bank or local mortgage company and don’t realize they are really getting a retail mortgage rate. Even Internet lenders offer retail mortgage rates to their customers. Finding the right mortgage with a wholesale interest rate can be tricky; however, doing your homework and learning how to negotiate for a wholesale mortgage rate is easier than you think. Here are several tips to help you find a wholesale lender while avoiding junk fees.
What Are Wholesale Mortgage Lenders?
Wholesale mortgage lenders are large financial institutions that offer loans through mortgage originators. These “loan originators” are the companies you see online and those with retail storefronts including mortgage brokers. When you take out a home loan from a retail mortgage company you are not only paying a fee for the “middleman’s” services, but are paying retail markup of your mortgage interest rate. You might think that bypassing the mortgage broker and going directly to a wholesale lender will get you a wholesale mortgage rate; however, this is simply not the case. Wholesale lenders do not deal directly with the public; although, most have retail divisions. If you contact a wholesale lender yourself you will be dealing with that lender’s retail division.
How Do You Get a Wholesale Mortgage Rate?
In order to qualify for a wholesale mortgage rate when refinancing your mortgage you’ll need the help of a mortgage broker. Banks don’t offer wholesale rates; they markup up their interest rates to boost their profits when the bank sells your mortgage. If your bank is out of the question and the only way to get your hands on a wholesale mortgage rate is with a mortgage broker, how can you find the right person for the job?
Mortgage Brokers Are Used Car Salesmen
Sad, but it’s true. All you are to your mortgage broker is a mark. Your mortgage broker will try and place you with the mortgage that brings them the largest commission. You can be sure that this is the wrong loan for your situation. If you assume that your mortgage broker does not have your best interest at heart and negotiate accordingly your will be well on your way to refinancing with a wholesale mortgage rate.
Before you can negotiate with your mortgage broker it is important to understand how mortgage brokers are compensated for their work. This compensation comes from two sources; origination fees charged by the broker and Yield Spread Premium by the lender.
Origination Fees and Yield Spread Premium
The origination fee that appears on your Good Faith Estimate is charged by your mortgage broker and is intended to be compensation for their part in arranging your mortgage. Many brokers charge too much for their origination fees. How much should you agree to pay for this fee? A reasonable amount to pay your mortgage broker for loan origination should not be more than one percent of the amount you are borrowing. Any more than this and you’re simply paying too much. How about Yield Spread Premium? Most homeowners have never heard of this unnecessary markup of their mortgage interest rate.
What is Yield Spread Premium? The second form of compensation your broker receives is a kickback from the lender for marking up your mortgage interest rate. Mortgage brokers mark up your mortgage interest rate because the lender pays them one percent of your loan amount for every quarter percent they overcharge you. This kickback is paid in addition to the origination fee you are already paying for the mortgage broker’s work. In most cases Yield Spread Premium will double or even triple the compensation your mortgage receives.
You Can Get a Wholesale Mortgage Rate
What’s the secret of refinancing with a wholesale mortgage rate? The secret is actually quite simple; avoid paying Yield Spread Premium and you’ll be able to refinance your mortgage with a wholesale mortgage rate. How can you avoid paying Yield Spread Premium? Refinancing with a wholesale mortgage rate means finding a broker willing to work for an origination fee alone without charging you Yield Spread Premium. This is where your negotiating skills come into play. Don’t be intimidated by negotiating with your mortgage broker.
Mortgage Broker Negotiation
Negotiating for a wholesale mortgage rate is easier than you think. You can start by telling your prospective mortgage brokers that you know how Yield Spread Premium works and will not accept any mortgage offer that includes the markup. Try negotiating with local mortgage brokers in your area that are self employed. You may have better luck dealing with this type of mortgage broker because those working for a large firm may not have the authority to broker the deal you need when refinancing your mortgage.
You can learn more about negotiating with your mortgage broker for the lowest possible mortgage rate, including expensive pitfalls to avoid by checking out my free Underground Mortgage Videos.