Mortgage Refinance Information

If you are a homeowner considering a new mortgage to refinance your existing loan, the process can be intimidating. No one wants to pay too much for anything and mortgage refinancing is no exception. You may have arrived at this site searching for “mortgage refinance information” and you’ve come to the right place. Here are several tips to help you find the perfect mortgage when refinancing.

How to Get Started Refinancing Your Mortgage

The first thing you need to do before shopping for a new lender is to take stock of your credit Your credit score largely determines the interest rate you will qualify for when refinancing, and if you have mistakes in your credit reports it will cost you. Credit reports are maintained by three separate credit reporting agencies and they’re not very good at sharing information. Make sure you go over all three reports with a fine-tooth comb and dispute any errors you find with each credit agency.

The three credit agencies responsible for maintaining your records are Equifax, Experian, and Trans Union. There are hundreds of sites out there offering free credit reports and scores if you purchase their credit monitoring service. Don’t fall for these scams; recent legislation in the United States requires each credit agency to provide you with one free copy of your credit file every year. You won’t get a credit score using this service; however, your credit score is not necessary for refinancing. If you really want to know the score you can find out from the mortgage lender. Print out all three copies of your credit report by visiting the website annualcreditreport.com.

How to Shop for a New Mortgage When Refinancing

Once you’re certain that your credit reports are error free you are ready to begin comparison shopping mortgage offers. There are several different types of mortgage lenders, and types of lenders you need to avoid. The basic lender types you need to be aware of include wholesale mortgage lenders, banks, and correspondent lenders also known as broker-banks.

Mortgage Refinance Information

The Real Estate Settlement Procedures Act, RESPA for short, is legislation in the United States that protects homeowners by requiring mortgage lenders to disclose their markup and profit margins on your loan. You may already be familiar with the Truth in Lending laws that require lenders to disclose the cost of borrowing as an Annual Percentage Rate (APR). The problem with APR is that while lenders are required to disclose this figure, there is no standardized method of calculating the percentage and every lender calculates their APR differently. This lack of standardized calculating makes the Annual Percentage Rate worthless for comparing loan offers.

The Real Estate Settlement Procedures Act makes up for the shortcomings of the Annual Percentage Rate, except that banks and broker-banks are exempt from this legislation. The Banking Lobby spent millions of dollars lobbying congress so that your bank doesn’t have to play by the same rules as other mortgage lenders. Banks are not required to disclose any of the markup they add to your mortgage interest rate; if you refinance your mortgage the bank is the only one that knows how much you’ll overpay.

As for correspondent lenders and broker-banks, these are simply banks pretending to be mortgage brokers. How can you tell if your mortgage broker is not a broker-bank? Ask if the broker closes in the name of the wholesale lender or in the name of their own company. If the answer you get is the loans are closed in their company’s name you know that you’re dealing with a broker bank. Never refinance your mortgage with a bank, broker-bank, or correspondent lender.

Mortgage Refinance Information and Yield Spread Premium

Now that you know a wholesale lender is the way to go when refinancing your mortgage, how do you find a wholesale lender to approve your loan? The average homeowner does not have access to wholesale mortgage rates so we’ll need to rely on a mortgage broker to access them for us. Refinancing your mortgage with a broker is a lot like buying a used car. Most mortgage brokers have the used car salesman mentality when selling you a mortgage loan; brokers try and explain away their markup of your mortgage interest rate as compensation paid by the lender.

This markup of your mortgage interest rate by the broker is called Yield Spread Premium and is responsible for most homeowners unknowingly overpaying when refinancing. Yield Spread Premium is simply the difference between the mortgage rate your wholesale lender approves you and the interest rate you close with after the broker marks it up. Mortgage brokers charge you Yield Spread Premium because the wholesale lender pays them a bonus of one percent of your loan amount for every quarter percent you agree to overpay. Yield Spread Premium is nothing more than an incentive for overcharging you and is a topic of heated debate in Congress.

The good news for you is that you can avoid this unnecessary markup of your mortgage interest rate. By learning how to recognize Yield Spread Premium on your Good Faith Estimate and HUD-1 statement you can avoid paying this markup. You can learn more about refinancing with a wholesale mortgage rate and avoiding Yield Spread Premium with my free mortgage video tutorial. You can register for the tutorial by clicking the DVD image at the top of this page; the videos are free and there is no obligation whatsoever.