Refinancing a California mortgage loan can be an intimidating process for many homeowners. Comparison shopping will help you find a variety of loan offers to meet your needs; however, if you want to avoid overpaying for your next California mortgage you need to understand how mortgage companies make their money and speak their lingo. Loan representatives and brokers are paid by commission; the more expensive your loan, the higher their commission.
The California mortgage loan that nets your loan representative the highest commission is probably the worst loan for your situation. This is why it’s important to understand your mortgage needs before you being shopping for a new loan. How do California homeowners overpay for when refinancing their mortgage loans? A little known markup called Yield Spread Premium will account for nearly $16 billion dollars in unnecessary mortgage interest this year, a large portion paid by California homeowners.
What is Yield Spread Premium? The interest rate you qualify is set by a wholesale mortgage lender when your application is approved. This mortgage rate is marked up by your loan representative because that wholesale lender pays them a bonus for overcharging you. That’s right, for every quarter percent that you agree to pay above the mortgage rate you were approved your loan representative receives a bonus of one percent of your loan amount. This bonus is paid in addition to the sizeable origination fees you’re already paying for their services.
The high price of California real estate means you’re already paying a large fee for mortgage origination; often in excess of one percent of your loan amount. If you agree to pay Yield Spread Premium your loan representative gets paid double for their work and you pay thousands of dollars every year unnecessarily. Fortunately, you can avoid the high cost of Yield Spread Premium when refinancing your California mortgage loan. To learn more register for our free mortgage tutorial “Five Things You Need to Know When Refinancing Your California Mortgage.”