If you have been considering a home equity loan but need to refinance your existing mortgage, cash back refinancing is an affordable alternative to home equity lines of credit and second mortgage loans. Cash back refinancing is a simple process compared to other home equity loans; you will be refinancing your existing mortgage for more than you owe on the original loan. The difference between the two loans is the amount you receive in cash at closing.
The cash you receive at closing can be used for any reason: home repairs, debt consolidation, or your child’s education are all common reasons for borrowing against equity in your home. When you refinance your mortgage you will be required to pay expenses out-of-pocket; these expenses include lender fees, points, and closing costs. Mortgage refinancing expenses vary widely from one lender to the next so it is important to comparison shop from a variety of lenders and brokers to ensure you are not overpaying for your new mortgage.
When you comparison shop for a new mortgage it is important to compare all aspects of the loan offers, not just the interest rates. Homeowners that neglect to compare all aspects of their loan offers overpay for closing costs and other fees. Depending on the type of lender you choose the lender may even charge you undisclosed fees; these undisclosed fees are why you should never take out a mortgage loan from your bank. Banks are exempt from the disclosure laws in the United States that protect homeowners, and are not required to inform you of their fees, markup, and profit margins from your loan.
Another nefarious fee mortgage companies and brokers slip past their borrowers is called Yield Spread Premium or YSP. Yield Spread premium is a fancy term for how much the broker or company overcharges you on the interest rate. Mortgage companies and brokers are retail sources for mortgage loans in the primary market. These companies quote you an interest rate given to them by the wholesale lender. Your mortgage broker or company often inflates the interest rate they quote you in order to receive a bonus from the wholesale lender. The difference between the rate quoted to you and the rate provided by the wholesale lender is the Yield Spread Premium. Your mortgage company receives a bonus of 1 point, or 1% of the loan amount for each .25% they overcharge you on the interest rate.
How can you avoid paying Yield Spread Premium? To learn how to recognize this retail markup of your interest rate and other common homeowner mistakes that cost thousands of dollars, register for our free Mortgage Refinance Information guidebook.