If you’ve been keeping an eye on recent mortgage rate trends or are searching the web for mortgage rates before refinancing your home there are several things you need to know about mortgage quotes you find online. Internet mortgage giants and even your local mom and pop mortgage broker quote mortgage rates that have been marked up to create the commission known as Yield Spread Premium. Never heard of Yield Spread Premium? Don’t sweat it, neither have 98% of your neighbors. According to the Secretary of Housing and Urban Development your neighbors, in fact most Americans, will overpay sixteen billion dollars for their home loans this year alone. Here’s how you can avoid being part of this statistic and get the best mortgage refinancing rates for your next home loan without paying unnecessary closing costs.
Yield Spread Premium Definition
So what is this Yield Spread Premium? Simply put it is a commission paid by the lender to the person arranging your mortgage for locking and closing with a higher than necessary mortgage rate. Yield Spread Premium is paid in addition to loan origination fees you’re already paying this person for the work they do arranging your home loan. Think of Yield Spread Premium as a form of “double dipping” at your expense.
You might think “Why do I care about Yield Spread Premium if the fee is being paid by the lender and not coming out of my pocket?” This is in fact an argument put forth by many mortgage brokers. They tell you not worry about the paid outside of closing (POC charges) found on your Good Faith Estimate and HUD-1 Settlement Statement because the fees are paid by the lender. Think for a moment why would the lender pay this fee for you? I mean really, what’s in it for them? We’ve all learned how evil and greedy banks and credit card companies are after the recent financial bailouts so why would they do anything that cost them a buck?
The reason mortgage lenders pay your mortgage broker Yield Spread Premium is because there IS something in it for them. In fact, Yield Spread Premium is the reason lenders realize the majority of their profits on your home mortgage loan. You see lenders don’t just sit around collecting interest from your home loan to make a buck. Mortgage lenders sell their home loans to investors on the secondary market. Home loans with higher than market mortgage rates bring them the most profit. This is why mortgage lenders reward mortgage brokers for closing loans with higher than necessary mortgage rates…the higher the mortgage rate, the higher the reward. Unfortunately for you, the higher your mortgage rate, the higher your monthly payment will be; however, an unnecessarily high mortgage payment can be avoided.
Avoiding Yield Spread Premium
Feeling overwhelmed with the prospect of refinancing your mortgage? Don’t sweat it…you don’t have to be a financial guru to get a wholesale mortgage rate that doesn’t include Yield Spread Premium. All you need to do to avoid this unnecessary markup is find the right person to arrange your next home loan. Start by approaching local mortgage brokers and tell them you understand how Yield Spread Premium works. Offer to pay a flat origination fee for their services of one percent and be sure to tell them that you won’t accept any mortgage loan that includes Yield Spread Premium.
You can learn more about getting a wholesale mortgage rate for your next home loan while avoiding unnecessary closing costs by registering for my free Underground Mortgage Videos.
Here’s a sample of what you get for free you sign up…this video shows why your neighbors pay too much for their home loans and how you can avoid unnecessary markup and junk fees.
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.
