Mortgage rate locking can be a source of confusion for many homeowners. Lock at the wrong time and you could miss out on a good rate…fail to close before the lock expires and you could miss your rate all together. Locking your mortgage rate when refinancing is more important than you think; your rate lock confirmation provides you key information regarding your mortgage rate. Here are the basics you need to know about locking your mortgage rate when refinancing to avoid paying too much for your next mortgage loan.
Mortgage Rates Are Constantly Changing
Mortgage rates tend to fluctuate on a daily and sometimes hourly basis. If you miss locking your refinancing mortgage rate today, it will not be the same tomorrow. Your mortgage broker has to re-price your loan on a near daily basis. Before you can understand the importance of your mortgage rate lock confirmation you need to understand how your mortgage broker is paid for their work.
Origination Fees
Mortgage Broker Fee
Yield Spread Premium
The origination and mortgage broker fees are pretty straight forward but often over-inflated. Yield Spread Premium on the other hand will be cleverly disguised in your loan documents if disclosed at all. In the simplest terms Yield Spread Premium is simply a percentage of your loan amount created by the broker when they lock and close your mortgage with above market rates. This is a commission paid by the lender when your mortgage broker overcharges you.
If you plan on staying in your home for the long term it makes sense to pay an origination fee and avoid Yield Spread Premium completely. If you agree to pay any amount of Yield Spread Premium on your loan you could overpay thousands of dollars every year that you keep the loan. The problem is most homeowners don’t know how to recognize Yield Spread Premium on their loan documents. This is where the rate lock confirmation comes in…this one piece of paper could save you thousands of dollars.
Ask For Your Rate Lock Confirmation
After you lock in your mortgage rate, make sure you ask the broker for the rate lock confirmation from the wholesale lender. Don’t accept any confirmation typed up on your mortgage broker’s letterhead, it has to come from the lender directly. The reason you don’t’ want this document from the broker is that it will have Yield Spread Premium clearly disclosed on the form…mortgage brokers that provide rate locks on their own letterhead do so to hide what they’ve done with your mortgage rate. You can learn more about refinancing your mortgage with a wholesale mortgage rate without paying too much by registering for my free 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.
