If you are considering mortgage refinancing with a mortgage broker, there are several things you need to know in order to avoid overpaying for your new mortgage loan. By carefully negotiating with potential mortgage brokers on the retail markup of your loan, you can avoid paying thousands of dollars in unnecessary interest and fees. Here are several tips to help you outsmart your mortgage broker when mortgage refinancing.
Mortgage brokers are simply retail vendors for wholesale lenders. When a mortgage broker qualifies you for a loan the wholesale lender provides the broker with a written guarantee of your interest rate. The mortgage broker always marks up this interest rate and provides you with a separate written guarantee. This retail markup of the interest rate by the mortgage broker is called Yield Spread Premium.
Mortgage brokers inflate the interest rate on your loan because the wholesale lender they represent pays them a bonus for overcharging you. For each .25% the mortgage broker raises your interest rate that mortgage broker receives an additional point from the wholesale lender. One point is the equivalent of one percent of your loan amount. The mortgage broker is compensated by the origination points you pay when securing your loan and with this additional fee from the lender. By charging Yield Spread Premium and origination points you are effectively paying the mortgage broker double for your new mortgage loan.
How can you avoid paying the mortgage broker Yield Spread Premium? Insist on seeing the original interest rate guarantee from the wholesale lender. Tell your mortgage broker you will not pay Yield Spread Premium. Tell potential mortgage brokers you will pay the origination fees and closing costs, but will not pay any retail markup of the interest rate. You can learn more about mortgage refinancing without overpaying for the new mortgage by registering for a free mortgage guidebook.
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.
