Have you tried searching the Internet for “California Refi” lately? You’re bound to find hundreds of websites competing for your contact information; however, there is very little value on these websites. Mortgage lenders want California homeowners to overpay when refinancing; the more you pay for the new loan, the higher their profit margins. Doing your homework before applying for a California Refi will help you avoid many of the mistakes homeowners make when refinancing.
One problem you need to be aware of with your California Refi is Yield Spread Premium. The high cost of California real estate magnifies the problem of Yield Spread Premium compared to other areas of the country. What is Yield Spread Premium? It is simply the unnecessary markup of your mortgage interest rate to boost your loan originator’s commission. The markup is unnecessary because you are already paying this person an origination fee for their services.
Here’s an example of Yield Spread Premium in action. Suppose you’re refinancing your California home for $415,000. Your mortgage broker quotes you an interest rate of 6.75% and an origination fee of 1.0%. In this case the origination fee is $4,150, which is a reasonable amount to pay. What your mortgage broker isn’t telling you is that the wholesale lender that approved your loan qualified you for a 6.0% mortgage rate; however, the broker marked it up for a commission. Your mortgage broker receives an additional 1.0% of your loan amount for each .25% they markup your rate.
In the previous example the mortgage broker received $12,450 on top of the $4,150 you paid for their services for overcharging you! The additional .75% will cost you thousands of dollars every year that you don’t need to pay. Fortunately, you can avoid paying Yield Spread Premium with your California Refi. Homeowners who learn to recognize this abusive markup can avoid paying. You can learn more about avoiding costly mistakes with your California Refi by registering for our free mortgage refinancing 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.
