Beating the Mortgage Game

If you’re in the process of refinancing your home loan you might be concerned with finding the right lender and interest rate for your new loan. Finding the lowest mortgage rate will save will save you thousands of dollars over the lifetime of your loan. What many homeowners don’t know about mortgage refinancing is that it is possible to get wholesale rates if you understand how the mortgage game works.

Mortgage loans are retail products just like the appliances you purchase for your home. Appliance stores mark up their products to make a profit. Similarly banks, mortgage companies and mortgage brokers mark up their loans to boost their profits. What you might not know is that this markup is completely unnecessary because you are already paying a fee for their services. Here’s an example of retail markup of your mortgage interest rate in action.

Suppose you refinance your home for $150,000 and your mortgage broker quotes you a 6.5% interest rate. You agree to pay $1,500 for origination fees; this amount is one percent of the loan and is a reasonable amount to pay. What your mortgage broker isn’t telling you is that you qualified for a 6.0% mortgage rate and they’ve marked your rate up for a commission. For every quarter percent you agree to overpay beyond the 6.0% rate the lender approved you the broker receives one percent of your loan amount as commission. In this case you’re paying $1,500 for the origination and the lender is paying $3,000 to the broker for charging you the above market interest rate.

In this example your mortgage broker walks way with $4,500 and you get stuck paying above market rates for the entire duration of your loan. So what about “Beating the Mortgage Game?” The good news for you is that homeowners who learn to recognize this unnecessary markup of their mortgage interest rate can avoid paying it. You can learn more about refinancing your mortgage without overpaying with our free mortgage refinancing toolkit.