If you are a Colorado home owner considering a new mortgage loan, there are several steps you can take to avoid paying too much when refinancing. Comparison shopping mortgage offers will only get you so far unless you know how to negotiate for wholesale mortgage rates. Here are several tips to help you refinance your Colorado home mortgage with the lowest rate possible for your situation.
Many homeowners start their search for a new mortgage by typing Colorado Home Mortgage Refinance Loan into a search engine. This search would return a number of websites promising mortgage quotes with low interest rates. The problem with these “Colorado Home Mortgage Refinance Loan” quotes is that they include retail mortgage rates that have markup intended to give the loan originator a fat commission check.
So what makes a mortgage loan “retail?” Retail mortgages include markup known as Yield Spread Premium. This markup is the difference between the wholesale interest rate the lender approved your loan and the mortgage rate you closed with. Mortgage companies and brokers mark up interest rates because wholesale lenders pay them a bonus for closing mortgage loans with above market interest rates. For every quarter percent you agree to overpay your loan originator pockets one percent of your mortgage amount.
Here’s an example of how retail mortgage interest rates work. Suppose you refinance your Colorado home mortgage for $250,000 for 30 years at 6.75% interest rate. Your mortgage broker charges you an origination fee of one percent and tells you what a fabulous deal you’re getting. (Sound familiar?) What your broker isn’t telling you is that the wholesale lender approved you for a 6.25% mortgage rate and they’ve marked it up to 6.75% for a commission.
In the previous example the mortgage broker pockets your origination fee of $2,500 plus $5,000 from the lender for a total of $7,500. You’re stuck with an above market interest rate that you didn’t have to pay. Don’t let this scenario happen with your Colorado home mortgage refinance loan; by learning how to recognize Yield Spread Premium you will keep the wholesale mortgage rate your lender approves you. You can learn more about refinancing without overpaying by requesting our free mortgagee toolkit using the link at the top of this page.