If you are in the process of refinancing your home loan, your mortgage company has a dirty secret they don’t want you to know. This secret is how mortgage companies overcharge homeowners for the interest rates they receive. If you learn how to recognize this markup of your mortgage interest rate you will save thousands of dollars when refinancing. Here is what your mortgage company doesn’t want you to know when refinancing your mortgage.
How do mortgage companies mark up your interest rate? This markup is called Yield Spread Premium and happens when your loan representative marks up your mortgage rate for a commission from the wholesale lender. Mortgage companies do this without telling you and rarely does this markup appear on your Good Faith Estimate.
Your mortgage company marks up the interest rate you were approved because the wholesale lender pays them a bonus of one percent of your mortgage amount for every quarter percent that they overcharge you. The difference between the mortgage interest rate you qualified and the rate you close is the Yield Spread Premium. Here’s an example of a mortgage refinancing transaction with Yield Spread Premium.
Suppose you are refinancing your California mortgage loan for $500,000. Your mortgage representative tells you that you qualify for a 7.5% interest rate and will pay 1.5% for the origination fees. What your mortgage company isn’t telling you is that you qualified for a 7% mortgage rate before Yield Spread Premium. You’re already paying the mortgage company $5,000 in origination fees; however, they are helping themselves to an additional $10,000 of your money by marking up your interest rate. The mortgage company walks away with $15,000 and you’re stuck paying an unnecessary .5% on a $500,000 mortgage loan. The high cost of California Real estate greatly magnifies the problem of Yield Spread Premium.
How can you avoid paying this ridiculous markup of your mortgage interest rate? Homeowners who learn to recognize Yield Spread Premium can negotiate to avoid paying the markup. You can learn how to avoid Yield Spread Premium and other costly mistakes with our free mortgage video tutorial.