If you are refinancing your home mortgage, people might tell you to comparison shop until you drop to get a good deal. The problem with this advice is that all of the loan offers you compare include Yield Spread Premium. No amount of comparison shopping will help you avoid paying this markup until you learn how to negotiate for a mortgage without it.
Yield Spread Premium is the retail markup of you mortgage interest rate to boost your loan originator’s commission. When your mortgage application is approved by the lender you qualify for a specific mortgage rate. Your loan representative knows this mortgage rate but marks it up to receive a bonus from the lender. Your loan originator receives an additional 1% of the loan amount for each .25% they markup your loan. This incentive for overcharging you is built into every mortgage loan offered in the United States.
Now that you know how mortgage companies mark up interest rates, how can you avoid paying Yield Spread Premium? Tell your loan representative that you will pay a reasonable fee for the origination of your loan, but will not pay any markup of your mortgage interest rate. Ask what the commission will be for your mortgage. If the commission is $4,000 or more you’ve most likely been placed in a high-cost mortgage for the sole purpose of boosting the loan officer’s commission. You can learn more strategies for refinancing your mortgage without paying too much with our free mortgage video tutorial.