If you’re a homeowner considering refinancing your home mortgage loan, one of your primary concerns for the new loan is the mortgage rate you receive. Many homeowners don’t understand how the interest rates they are quoted are determined or what they can do to improve that rate. Here are the basics you need to know about your refinancing mortgage rate and how you can get a wholesale mortgage rate when refinancing.
Your Ideal Refinancing Mortgage Rate Starts With a Wholesale Lender
Assuming that you will not be refinancing the mortgage with your bank due to loopholes in the Real Estate Settlement Procedures Act, the best refinancing mortgage rate deals are found with wholesale lenders. Because wholesale mortgage lenders don’t deal with the public directly you’ll need to use a mortgage broker to get your interest rate wholesale. Mortgage brokers are basically salespeople that resell mortgage loans for wholesale lenders. They do this for an origination fee paid by you and often a commission from the wholesale lender. The lender paid commission is a bonus for charging you an above market interest rate. Here’s an example of a typical brokered refinancing transaction that involves above market markup.
Kathy is an average suburban homeowner that has decided to find a new mortgage so she can borrow against equity in her home to pay off her credit card debts. She is concerned about her refinancing mortgage rate; however, here broker sold her on a thirty year fixed rate mortgage at 6.75%. Kathy thinks she’s getting a good deal and her broker is only charging her one percent for the origination fee on her $350,000 mortgage.
What Kathy doesn’t know is that the wholesale lender approved her for a refinancing mortgage rate of 6.25 percent and her broker marked the rate up for a commission on top of the 1.0% she’s already paying for the origination fee. The broker marked up her mortgage rate because the wholesale lender pays one point for every .25 percent she agrees to overpay. Remember that a point is one percent of the loan amount and in this example the broker pockets an additional 2% of ther mortgage amount for overcharging Kathy. The mortgage broker walks away with 3% of Kathy’s loan amount in commission and Kathy is stuck paying an above market interest rate.
Your Refinancing Mortgage Rate and YSP
What is YSP? Yield Spread Premium is the difference between the interest rate you qualified and the above market rate your loan closes with. Yield Spread Premium serves no purpose other than to give your mortgage broker a bonus for overcharging you. Fortunately, homeowners who learn to recognize this unnecessary markup of their refinancing mortgage rate can avoid paying it. When you’re shopping for a new mortgage loan once you understand how the broker marks up your mortgage rate you can negotiate for a broker that will work for a reasonable origination fee without marking up your refinancing mortgage rate.
You can learn more about refinancing your mortgage with a wholesale interest rate without paying too much with my free mortgage tutorial. Register today using the link at the top of this page; it’s free and there is no obligation whatsoever.
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.
