If you’re considering refinancing your home mortgage loan is it better to refinance with a mortgage bank or a broker? There are advantages and disadvantages to both; however, going about it the wrong way with either one will result in overpaying thousands of dollars. So which is better when refinancing your home, a mortgage bank or broker? Here are my best mortgage refinancing tips to help you avoid paying too much for your next home loan.
Mortgage Bank or Broker When Refinancing?
Refinancing your home should be cut and dry. Play a flat fee, get a great rate, mortgage refinancing done, right? Unfortunately, loan originators, mortgage companies, and banks are greedy bastards, caring only about their bottom line and they could care less about yours. Think I’m being too harsh? Read up on the Bank of America’s acquisition of Countrywide Mortgage and about their chunk of the government’s bail-out money and you’ll see what I mean. Anyone who tells you otherwise is just selling another overpriced mortgage loan. Sad but true… So, how to get the best loan when refinancing your home? Most homeowners think shopping for a mortgage by comparing rates and fees will get them the best deal…if you do this when refinancing you’ll end up with the best of the worst loans out there just like your neighbors did when they refinanced.
Mortgage shopping isn’t about comparing dozens of loan offers and fees until you can’t see straight. If you want the best mortgage you need to find the right person to arrange your next home loan. Who is this “right person,” a mortgage bank or broker? Keep reading and you’ll find out how to find the best person to arrange your next home loan.
Mortgage Banks & Broker Banks
Refinancing with a mortgage bank loan is a fast and convenient way of mortgage refinancing. What could be easier than automatically transferring your mortgage payment from your checking account every month? The problem with banks is that your bank plays by their own rulebook…which is to say they don’t play by the same rules as other mortgage lenders and they don’t play fair. The reason for this is that the banking lobby spent millions of dollars to have legislation changed to exclude them from certain “key” disclosure laws. Mortgage brokers on the other hand don’t have a lobby with deep pockets and don’t enjoy the same loopholes as banks, putting a plus in the mortgage broker score column for homeowners.
What is this disclosure law I’m talking about? It’s called the Real Estate Settlement Procedures Act and the reason it’s so important is because it requires mortgage brokers to disclose the fee your lender is paying them for marking up your mortgage rate. Once you understand how to recognize this commission based markup of your mortgage rate you can avoid it and lower your monthly payment by as much as several hundred dollars. Banks on the hand play by different rules. Unlike your mortgage broker who resells loans from wholesale lenders, banks fund their loans with the bank’s money. Therefore they set their own mortgage rates and aren’t required to tell you the profit margin on their loan. All your get from your bank is an Annual Percentage Rate (APR) based on low-balled fees and no idea what mortgage rate you could have had refinancing with a wholesale lender.
What about mortgage broker banks? When the laws changed a group of enterprising mortgage brokers wanted in on the same action enjoyed by banks. These brokers formed mortgage bank institutions that fund loans with their own money and therefore enjoy the same loophole in the Real Estate Settlement Procedures Act as your bank. You might think you’re dealing with a mortgage broker, they might even tell you that you are; however, if they close the loan in their company’s name instead of the wholesale lender then they’re funding your loan themselves and are doing business as a broker bank. There’s only one reason to do business this way; that reason is to take advantage of people and charge whatever they like…if you want the best deal for your next home loan you’ll need to avoid mortgage banks and broker banks at all costs.
Mortgage Broker Refinancing
Don’t get me wrong, mortgage brokers aren’t saints either…they want the same thing your bank wants, which is as much of your money as possible. How do mortgage brokers do this? They do it by marking up your mortgage rate for a commission from the wholesale lender known as Yield Spread Premium and by charging you as many junk fees as possible. How do you avoid this unnecessary markup of your mortgage rate and junk fees you ask? You do it by finding the “right” mortgage broker. Before you can find the right mortgage broker to refinance your home I need to go over how mortgage brokers are paid in more detail.
Mortgage Broker Compensation
If you refinance your home loan with a mortgage broker you could be charged a number of fees for loan origination. These fees include the origination fee, processing fee, courier fee, rate lock fee, and loan underwriting fees. These fees are in addition to any Yield Spread Premium your mortgage broker receives for marking up your mortgage rate. Loan origination fees are paid directly to the mortgage broker for their part in arranging your mortgage. A reasonable amount to pay your mortgage broker is one percent of your loan amount. Not all mortgage brokers charge processing fees; however if they use a third party processor to print out their documents the fee for this should not be more than $400…which seems like A LOT just for making copies. Ever hear of a mortgage rate lock fee? They’re like unicorns, they don’t exist. If your mortgage broker shows you a one-horned goat and calls it a unicorn are you going to pay a rate lock fee? Mortgage rate lock fees, like broker courier fees are pure garbage and if your broker charges you these fees you should find someone else to arrange your home loan.
How to Avoid Mortgage Rate Markup
Yield Spread Premium is the fee your mortgage broker gets paid by the lender for marking up your mortgage rate. This unnecessary markup of your mortgage rate can drive your payment up as much as several hundred dollars per much which adds up to thousands of dollars you’re throwing away in just a few short years. For every .25 percent your mortgage broker overcharges you they receive a kickback from the lender of one percent of your loan amount. Many brokers take as much as three points in Yield Spread Premium on top of the origination fees they’re charging for ripping people off. Mortgage lenders pay this extra kickback because home loans with higher than market interest rates bring them a premium profit when the loans are sold to investors on the secondary market.
You Can Avoid Yield Spread Premium
The good news for you today is this hidden markup of your mortgage rate that adds hundreds of dollars to your payment unnecessarily can be avoided. You don’t even have to be a financial guru to pull this off, find the right mortgage broker and you can pay a one percent origination fee without Yield Spread Premium and walk away with a wholesale mortgage AND pay half of what your neighbors paid at closing. How can you accomplish this feat of financial wizardry you ask? Check out my free underground mortgage videos and you’ll find out how to do it for yourself in six easy to follow steps.
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You can learn more about paying less for your next home loan by checking out my free Underground Mortgage Videos.
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