If you’re a homeowner “newbie” looking to refinance your mortgage for the first time or a seasoned real estate investor looking for money saving tips when refinancing you need to learn everything you can about Yield Spread Premium. According to the Secretary of Housing and Urban Development, homeowners in the United States will overpay nearly sixteen billion dollars this year because of Yield Spread Premium and other fees.
So what is Yield Spread Premium? Most homeowners have never heard of Yield Spread Premium even though the topic is on the news and hotly debated in Congress. Yield Spread Premium is simply the difference between the wholesale interest rate your mortgage lender approved you and the above market rate you agreed to pay at closing. Why on earth would you agree to pay an above market mortgage rate? Because most homeowners have never heard of Yield Spread Premium and have no idea how it works.
Yield Spread Premium serves one and only one purpose; to reward loan originators for closing mortgage loans with above market rates. Wholesale lenders pay a bonus of one percent of your mortgage amount for every .25% you overpay when refinancing. This bonus is paid in addition to the origination fees you are probably already overpaying. (Paying anything over 1% for origination fees is highway robbery)
The problem with Yield Spread Premium is that your mortgage broker is never going admit that they’ve marked up your interest rate and the disclosure is cleverly disguised on your HUD-1 statement. (Usually found around lines 810-812) This lack of honest disclosure is why 97% of homeowners blindly accept mortgages that include Yield Spread Premium.
You came here today looking for information on “How to Refinance a Mortgage.” The single most important thing you need to know about mortgage refinancing is that you cannot accept a loan that includes Yield Spread Premium. You can start by telling your mortgage broker that you understand how Yield Spread Premium works and will not accept a mortgage that includes the markup. This tip alone will save you thousands of dollars in lender finance charges. You can learn more about refinancing your mortgage without overpaying with our free mortgage toolkit.