If you’re shopping mortgage interest rates to purchase your home or refinance an existing mortgage there are several things you need to know to avoid paying too much for the loan. Here are several tips to help you qualify for the best mortgage rate without being taken advantage of in the process.
Wholesale vs. Retail Mortgage Rates
Mortgage rates come in two varieties. There are the wholesale rates offered to mortgage brokers and the retail mortgage rates they sell to consumers for a commission. Your mortgage broker earns a commission in two ways. The first way your broker is compensated is by charging you an origination fee for their services. This is an upfront fee found on your Good Faith Estimate and is typically for one percent of your mortgage amount.
The second way brokers are compensated is with a kickback from the mortgage lender behind your loan. Mortgage lenders reward brokers for originating loans with above market interest rates. The difference between the mortgage rate you could have had and the one your broker sold you is called Yield Spread Premium. For every quarter percent that your mortgage broker overcharges you, that person receives one percent of your loan amount as a bonus! This is the dirty little secret of the mortgage industry that costs American homeowners nearly sixteen billion dollars every year according to the secretary of Housing and Urban Development.
Yield Spread Premium Can Be Avoided
The good news for savvy homeowners is that Yield Spread Premium can be avoided. Learn to spot the markup on your Good Faith Estimate and HUD-1 Statement and you can negotiate with your mortgage broker to pay a reasonable origination fee without paying Yield Spread Premium. This allows you access to wholesale mortgage rates saving you thousands of dollars in finance charges.
You can start by telling your mortgage broker that you understand how Yield Spread Premium words and will not accept a mortgage that includes the markup. Try negotiating with mortgage brokers that run their own businesses as a broker with a large firm may not have the authority to make the deal without retail markup.
If you’d like more advice about financing your home with a wholesale mortgage rate, register for this free mortgage refinancing 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.
