If you’re like many Florida homeowners refinancing mortgage loans, finding the lowest mortgage rate is your primary concern when refinancing. Getting the lowest possible Florida mortgage rates takes more than just comparison shopping; you’ll need to understand how rate quotes work to get the best deal. Here are several tips to help you find the best mortgage when refinancing your Florida home loan.
Mortgage rate quotes
With the exception of Bank loans, mortgages are retail products resold by mortgage companies and brokers for profit. Mortgage brokers make their profits by charging you a fee and by marking up your mortgage rate. The quotes you receive when shopping for Florida mortgage rates all include markup by the broker to give them a commission.
The commission paid by the mortgage lender is called Yield Spread Premium and avoiding it needs to be your number one priority when refinancing your home. Yield Spread Premium Sounds scary but it’s a relatively simple concept to wrap your head around. When a lender approves your application they are approving you for a certain “wholesale” mortgage rate. Your mortgage broker marks this rate up to get a kickback from the lender…for every quarter percent you agree to overpay the broker gets paid one percent of your mortgage amount.
Florida Mortgage Rates and You
The problem with this commission based markup of your mortgage rate is that it’s never properly disclosed or explained. Yield Spread Premium adds thousands of dollars to your mortgage payment every year that you keep that loan, money you’re paying because the broker took advantage of you. Here’s an example to illustrate Yield Spread Premium and Florida mortgage rates.
Suppose you’re refinancing your Sarasota home for $300,000 with a fixed rate 30 year mortgage. The broker quotes you a mortgage rate of 7%….you’ve had some dings on your credit and need to consolidate your home equity loan so you agree to the loan. Your mortgage payment at 7% interest is $1,995 per month.
What your mortgage broker isn’t telling you is that you actually qualified for a 6.5% mortgage rate and they’ve marked it up to 7% to get a 2% commission from the lender. This commission is paid in addition to the 1% origination fee that they’re charging you. The broker walks away with 3% and you get stuck paying more than you need to…but exactly how much more?
The same loan with a 6.5% mortgage rate has a monthly payment of only $1890! That’s an additional $1,260 you’ll be paying every year just to give your mortgage broker a bonus. Over the next five years this balloons up to $6,300! How many other uses do you have for your own money besides giving it to someone that lied to you?
The good news for the Sarasota Florida homeowner in this example is that Yield Spread Premium can be avoided. By doing your homework you can learn to recognize this unnecessary markup and avoid junk fees in the process. You can learn more about doing this for your home by registering for my free mortgage video tutorial.