Jumbo Mortgage Rates Scam

If the value of your home is above the conforming loan limit for your region of the country, Jumbo Mortgage Rates are a concern for you when refinancing your home. What you might not know is what has your broker salivating over closing and is the hidden markup found in nearly all Jumbo Mortgage Rates. Here are the basics you need to know about refinancing with Jumbo Mortgage Rates to help you avoid paying too much at closing and thousands of dollars every year in hidden markup.

Jumbo Mortgage Rates Basics

If the dollar amount of your home loan is above the conforming loan limit set each year by Fannie Mae and Freddie Mac you have a jumbo mortgage loan. This means that Fannie Mae and Freddie Mac won’t back the entire amount of your home loan. Because of this, Jumbo Mortgage Rates are typically higher than interest rates found on conforming home loans because the lender is assuming more risk of foreclosure.

What you need to know about Jumbo Mortgage Rates is while it’s true you may not be able to avoid this risk based markup by the lender, what you need to avoid at all costs is commission based markup by the broker. Did you know that according to the Secretary of Housing and Urban Development, homeowners in the United States, your neighbors, will overpay sixteen billion dollars this year alone due to commission based markup of their home loans? Most homeowners have never heard of the fee lenders pay for this markup known as Yield Spread Premium, let alone what it does to their monthly payments.

Avoiding Hidden Mortgage Markup

The good news is that you don’t have to be a personal finance guru to avoid unnecessary markup. I’m going to show you how to get as close to wholesale as possible when it comes to Jumbo Mortgage Rates. First of all, you’ll need a clear understanding of mortgage Yield Spread Premium (YSP). What is it? Simply put, YSP is a commission, fee, kickback, whatever you’d like to call it paid to the person arranging your loan for locking and closing with higher than necessary Jumbo Mortgage Rates.

I say higher than necessary because both the broker and the lender know the lowest interest rate your loan can be approved; however, the broker salivating in the corner knows that if he locks and closes higher he’ll get a commission from that lender for overcharging you. Here’s an example to illustrate how this works.

Yield Spread Premium in Action

Suppose for example, you are refinancing your California jumbo home loan for $500,000. Your broker charges you an origination fee for their work of 1.5% and quotes you at 6.5%. This means your monthly payment on a fixed-rate, thirty year home loan will be $3,160. This is a serious payment to meet every month. What you don’t know about this home loan is that the lender actually approved you for Jumbo Mortgage Rates at 6.0%, and the broker marked it up to 6.5% without telling you.

How can this be legal you ask? Changes to the RESPA laws in 2010 did not abolish Yield Spread Premium like many homeowners think, the law only requires brokers to disclose the fee they receive for it alongside the origination fee they are charging you. The problem is most brokers are very good at explaining away Yield Spread Premium. “Hey that fee isn’t coming out of your pocket, don’t worry about it.”

So what does this hidden insidious markup of Jumbo Mortgage Rates do to your monthly payments? If you had the jumbo mortgage rates you deserve at 6.0% your monthly payment on the same home loan would only be $2,997. That’s a difference $163 per month, $1,956 per year all because the broker took advantage of you. Don’t let it worry you too much, the good news today is that now that you know about Yield Spread Premium you can avoid paying for it.