If you are in the process of refinancing your California mortgage loan, there are several things you need to know to avoid overpaying. The housing market in California is challenging enough for homeowners without someone trying to take advantage of the situation. Unfortunately, this is exactly how mortgage lenders operate. The good news is that if you know how to shop and negotiate for your California Mortgage Refinance loan, you can avoid overpaying. Here are several tips to help you avoid costly mistakes with your California mortgage refinance loan.
Yield Spread Premium is the markup of your mortgage interest rate by your loan originator. California mortgage companies and brokers routinely charge Yield Spread Premium with their loans because the wholesale lender that funds your California mortgage refinance loan pays them a bonus for doing so. For every .25% that you agree to overpay over the mortgage rate you were qualified, your mortgage originator receives a bonus from the wholesale lender of 1% of your loan amount.
When you take out a California mortgage refinance loan you will be required to pay origination fees to whoever prepares your loan. Reasonable origination fees are in the ballpark of 1.5% of your loan amount; however, if you agree to pay Yield Spread Premium you are effectively paying double for your new loan. The good news is that you can avoid paying Yield Spread Premium when refinancing your California mortgage loan.
The first step to avoiding this unnecessary markup of your mortgage interest rate is to check the weekly yield found on Fannie Mae’s website. This will give you an idea of what wholesale mortgage interest rates are without the originator’s markup. Once you have this information you can start comparison shopping for mortgage offers. Tell your loan representative that you will pay a reasonable origination fee and any necessary third party settlement charges, but will not pay any markup of the mortgage rate by their company. Ask to see the mortgage rate sheet from the wholesale lender and compare it to the mortgage rate you were offered. Once you find a mortgage company or broker that agrees to these terms for your California mortgage refinance loan, make sure you get all of the conditions in writing. Verbal agreements are meaningless when closing on a new mortgage loan.
You can learn more about your California mortgage refinance loan options, including other costly mistakes you need to avoid with our free mortgage 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.
