No fee mortgage refinancing simply doesn’t exist. You’ll see advertisers on television like Bank of America bragging about their no cost, no fee mortgages; however, no cost mortgage refinancing is a lie. Here is the truth you need to know about no fee mortgage refinancing to prevent falling victim to these empty promise of no fee mortgage loans.
Every mortgage loan sold today has closing costs and fees that have to be paid one way or the other. When an advertiser claims that their loans have no fees, they are not telling you the whole story. Mortgage closing costs get paid in one of three ways:
You can pay cash at closing.
You can roll the costs into your loan balance.
You can take a higher mortgage rate instead.
In the case of “no fee” mortgage you see advertised on the radio and television you are taking a higher mortgage rate in exchange for the lender covering your costs. This is also true of the “low flat fee” mortgages you see advertised by companies like Ditech. There are always closing costs including those paid to third party companies when taking out a mortgage. When you fall for one of these “no fee” mortgage loans your lender is locking your mortgage rate high enough to pay your closing costs.
You might be asking how a higher mortgage rate could cover your closing costs. The reason this happens is what’s known as the mortgage industries dirty little secret. Yield Spread Premium is the industry term for the fee wholesale lenders pay for closing loans with above market mortgage rates. The higher mortgage rate you agree to pay when refinancing, the more profit your lender makes when the loan is sold to investors on the secondary market. This is why lenders pay a commission to loan originators for closing loans with above market rates.
Lenders that you see advertising “no fee” mortgage loans are simply using this fee to pay your closing costs. Banks do the same thing as other mortgage lenders they just give it a different name. You are simply agreeing to a higher mortgage rate which results in a higher payment amount every month that you keep the loan to avoid paying closing costs. What’s wrong with using Yield Spread Premium to pay closing costs?
Yield Spread Premium Can Be Avoided
This markup of your mortgage interest rate is not only completely unnecessary, but is dishonest. It is possible to pay a reasonable fee for loan origination and refinance your mortgage with a wholesale rate. A reasonable origination fee to pay is one percent of your mortgage amount and there are honest mortgage brokers willing to work for that. Sure you’ll have to pay closing costs; however, if you plan on keeping your home refinancing with a wholesale mortgage rate can save you thousands of dollars in the long run.
You can learn more about refinancing your mortgage with a wholesale mortgage rate while avoiding broker and lender junk fees with a free mortgage refinancing DVD. Click the DVD image at the top of this page to order your free copy today.