Are you considering taking out a new mortgage to refinance your existing home loan?
If you’re seeking advice online to help you find the best loan with the lowest possible mortgage rate there are a number of things you need to know in order to avoid paying too much when refinancing.
Here are several mortgage tips to help you avoid a costly mistake when refinancing your home mortgage loan.
Mortgage Advice Today
Ever hear of Yield Spread Premium? Don’t feel bad if you haven’t… 90 percent of homeowners in the United States have no idea how this unnecessary markup of their mortgage rate drives their payment up costing them thousands of dollars every year. What is Yield Spread Premium? In the simplest terms it is a commission created for the person arranging your mortgage for locking and closing your loan with a higher than market mortgage rate. That’s right, mortgage lenders reward brokers that overcharge their customers with a commission.
How does Yield Spread Premium work? Suppose you are refinancing your $230,000 home and your broker quotes you a mortgage rate of 6.5%. The broker waives their origination fee stating that their fee is “being paid by the lender so it’s not costing you anything.” What a great deal right? What a load of crap. First of all, think about it… Why would the mortgage lender pay the broker’s origination fee unless there was something in it for them?
The truth is there is something in it for the lender. Mortgage lenders make the majority of their profits selling their loans to investors on the secondary mortgage market. Home loans with higher than market mortgage rates bring in premium profits for the lender, more than making up for the chump change they throw at the broker for overcharging you. Now that you know why lenders pay mortgage brokers for originating loans with higher than market rates let’s get back to our $230,000 example.
Your broker quoted you a mortgage rate of 6.5% on a $230,000 thirty-year, fixed rate mortgage. What you don’t know because most brokers will not tell you and often become angry and defensive if you ask them, is that you actually qualified for a 6.0% but they’ve marked your rate up to get Yield Spread Premium from the lender. For every .25% your broker marks up your mortgage rate they receive a commission from the lender of 1.0% of your loan amount. In this example the broker gets 2%, a commission of $4,600…which is double what they should be getting for arranging your loan.
So what’s the big deal with Yield Spread Premium? That $4,600 isn’t coming out of your pocket so why should you worry about it? Take a look at what that extra .5 percent you’re paying does to your monthly mortgage payment. If you had closed with the mortgage rate you deserve at 6.0% your payment on a $230,000 thirty-year, fixed rate mortgage would be about $1,370 per month. Since you agreed to overpay for your mortgage loan your payment for the same loan at 6.5% will be $1455. That’s $1,020 you’re throwing away every year because you paid too much when refinancing.
Mortgage Refinancing With a Bank
You might be saying to yourself “If mortgage brokers are so sleazy I’ll just avoid all this unfortunate Yield Spread Premium business by refinancing with my bank.” This sounds like a good idea; however, banks are just as guilty of ripping people off and twice as sleazy. Here’s why:
The Real Estate Settlement Procedures Act
Called RESPA for short is a bit of legislation in the United States that requires mortgage brokers to disclose their markup and profit margins on your home loan. Sounds good right? The problem with RESPA laws as they are on the books now is that banks and credit unions are exempt from these disclosure laws. Your bank is not required to tell you how much they’ve marked up your rate to make a profit selling your loan on the secondary market or how much profit they’re making for that matter. This markup of your bank or credit union for fun and profit goes by a slightly different name; it’s called Service Release Premium.
Where Do You Go From Here?
You’ve learned that your bank or credit union is a bad place to refinance your home and mortgage brokers cannot be trusted…so where does that leave you? It’s not a question of if you should use a mortgage broker when refinancing but which mortgage broker. You see brokers have access to wholesale mortgage rates and give you deals that your bank and credit unions will never allow… you just need to know how to find the right mortgage broker for the job.
Fortunately for you, finding the right mortgage broker to refinance your home loan is easier than you think. You can learn more about refinancing your home with the lowest possible mortgage rate while avoiding junk fees by registering for my underground mortgage videos. Register today for immediate online access from your PC and you’ll be on your way to saving thousands of dollars on your next mortgage loan.