If you are considering taking advantage of lower mortgage rates to get a lower mortgage payment and are looking for information on how to refinance a mortgage, here are several tips to help get you started.
You should know that mortgage brokers are the key to getting a good deal when refinancing; however, you should also know that these people earn their living by commission.
The home loan that gets your mortgage broker the largest commission is probably not going to be the best loan for you.
How to Refinance
Refinancing your home mortgage is not all that different from any other purchase you make. Mortgage loans are retail products meaning that there is a middleman that marks up your loan for a profit. You already know that buying consumer products wholesale can save you a bundle of cash; the same is true when it comes to your mortgage loan. Mortgage brokers have access to wholesale rate Find the right broker and you can get a wholesale rate when refinancing your home loan.
How Mortgage Brokers Are Paid
There are several ways mortgage brokers are compensated for arranging your mortgage loan. Your Broker can charge you origination fees at closing. Your broker could also markup up your mortgage rate for a commission from the wholesale lender behind your mortgage. Mortgage brokers also charge a number of fees considered to be “junk fees.” One example of a junk fee you might find on your Good Faith Estimate is a “Mortgage Broker Courier Fee.” This is a made-up fee headed straight for your broker’s pocket if you agree to pay it.
How to Refinance a Mortgage with a Wholesale Rate
You can get a wholesale mortgage rate for your loan by finding the right mortgage broker. The best brokers don’t work for large companies like Countrywide or for large mortgage web sites like Lending Tree. The best mortgage brokers are local and self employed. Find a self employed mortgage broker working out their home? Better still. The reason small time self employed mortgage brokers are better is because they do not employ a sales staff or in many cases pay for posh office spaces. You’re much more likely to negotiate a good deal from this type of broker simply because they can afford to do so.
Mortgage Terminology 101: Yield Spread Premium
The first term you need to know when learning how to refinance a mortgage is Yield Spread Premium. This is simply the fee paid by your lender because the broker marks up your mortgage rate. This markup is what makes mortgage rates retail. The lender rewards the broker with one percent of your mortgage rate for every quarter percent they markup up your interest rate. You won’t find Yield Spread Premium on your Good Faith Estimate and many brokers get defensive, even angry when you ask them about it.
There are two ways to find out if your mortgage broker is marking up your mortgage rate for Yield Spread Premium. The first place this markup is disclosed is on the rate lock confirmation from the lender. Ask your broker to see the original rate lock confirmation. If the broker refuses because it’s “confidential” from the lender you know that they are not being honest with you and are lying about your mortgage rate. Find another mortgage broker willing to show you the lenders rate lock confirmation.
The second opportunity you’ll have to spot Yield Spread Premium is on your HUD-1 Settlement Statement. Yield Spread Premium will be disclosed in section 800 on the HUD-1 around lines 810-811. Many brokers try and disguise their commission…it could be listed as Mortgage Broker Rebate or Yield Spread Premium paid to broker.
Where to Go from Here
Avoiding Yield Spread Premium is the most important aspect of getting a good deal for your home loan. You can learn more tips for saving money, including how to recognize junk fees, by registering for the free video tutorial on this site.
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.
