If you are in the process of refinancing your home mortgage loan the Good Faith Estimate can be a source of confusion. While the Good Faith Estimate (GFE) can be a useful tool for evaluating a loan offer, keep in mind that it is just an estimate and treat it accordingly. Here are several tips to help you understand Good Faith Estimates when refinancing your home mortgage loan.
What is the Good Faith Estimate?
Mortgage lenders are required to give you the standardized form known as a Good Faith Estimate within 24 hours of receiving your application for a mortgage loan. Of course this isn’t the most helpful time to get your Good Faith Estimate when comparison shopping; most mortgage lenders will provide you a copy for the loan you are considering upon request.
Your Good Faith Estimate is an itemized list of fees associated with your loan. Pay close attention to your loan origination fees and Yield Spread Premium as this is where most people overpay when refinancing. If you’re not familiar with these terms don’t worry…you’ve come to the right place to learn how to save money when refinancing.
Loan Origination Fees
Non-bank originated mortgage loans are arranged by a third person, typically a mortgage company or broker. These people work for an origination fee which is paid by you at closing. A reasonable amount to pay for loan origination is one percent of your loan amount; however, it is not uncommon to find mortgage companies and brokers charging four percent or more for loan origination. Your goal when refinancing your mortgage should be to find a mortgage broker willing to work for a one percent origination fee without charging you Yield Spread Premium.
Yield Spread Premium
Most people have never heard of Yield Spread Premium. Simply put, this is a commission paid to the broker by the lender behind your loan. Yield Spread Premium is paid because the broker marks up your mortgage rate beyond what your lender approved you to earn a commission. Your mortgage broker earns a commission of 1% of your loan amount for every .25% they overcharge you. Yield Spread Premium can add hundreds of dollars to your month payment just to pay a bonus to the person arranging your loan.
The good news is that you can avoid this unnecessary markup of your mortgage interest rate and save yourself thousands of dollars in the process. You can learn more about avoiding Yield Spread Premium and other garbage fees when refinancing your mortgage by registering for my free video tutorial.
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.
