I’ve been getting a lot of questions lately about “Par” mortgage rates when refinancing. Most people haven’t heard of par mortgage rates and don’t know what they are; others have heard of par when their mortgage broker name drops “par” to make them think they’re getting a great deal. What are par mortgage rates? Should you care and how can you get them?
Read on my friend…here are several tips to help save you thousands of dollars on your next mortgage loan.
Mortgage Rates Refinance
So you’ve decided to refinance your mortgage loan. Rates are low right now and lenders are desperate…no time like the present to refinance your home loan right? Refinancing right now can get you a good deal because rates are low; however, if you want the best deal available right now for your money there are several things you need to know to avoid overpaying.
What Are Par Mortgage Rates?
A par mortgage rate is simply one that does not cost you money nor create a commission for the person arranging you loan. That means you don’t have to pay points to get the mortgage rate and there is no Yield Spread Premium created for the broker. (More on Yield Spread Premium later) Some mortgage brokers will tell you that you have to pay points to get a par rate; If you for this your hard earned cash will go right into your mortgage broker’s pocket.
You’re probably already familiar with the concept of paying points to lower your mortgage rate; however, what you might not know is that your broker creates a cash commission by raising your mortgage rate, often without telling you. This markup of your mortgage rate for a commission is called Yield Spread Premium and is a cash percentage of your loan amount created for the mortgage broker when you lock and close your mortgage with a higher than necessary interest rate.
The problem with Yield Spread Premium is that while your mortgage broker is required by law (Real Estate Settlement Procedures Act) to disclose the fee they receive for inflating your mortgage rate, they all have clever ways of disguising the fee and frequently leave it off your Good Faith Estimate. How much of a problem is Yield Spread Premium? If the fee is paid by the mortgage lender and doesn’t come out of your pocket, do you really need to worry about it? The problem with Yield Spread Premium is not that the lender pays the fee, but the reason mortgage lenders reward brokers for closing loans with higher than necessary mortgage rates.
Here’s an example to illustrate what a higher than necessary mortgage rate does to your monthly payment amount. Suppose you are refinancing your home for $250,000. Your mortgage broker quotes you a rate of 6.5% and waives their fee for loan origination. No origination fee? That’s gotta be a great deal right?
What you don’t know about this loan is that you were actually approved for a mortgage rate of 6.0% and the broker marked it up to 6.5% for a commission of 2% of your loan amount. That’s an outlandish amount for the mortgage broker’s commission; except for the fact that they were waiving their fee.
Here’s what’s wrong with this mortgage loan: Your monthly payment amount with a 6.5% mortgage rate will be $1580 per month. If you had the mortgage rate you deserved at 6.0% your monthly payment would only be $1490 per month…that’s $1080 you’re overpaying every year! What could you do with a thousand bucks savings on your mortgage payment? I’m sure you know the answer to that…
You Can Get Par Mortgage Rates
Refinancing your home loan with a mortgage rate that does not require points or includes commission based markup is easier than you think. Once you understand how the mortgage rates refinance game works you can avoid markup and junk fees. The mortgage videos on this website will show you how to do this and save thousands of dollars on your next mortgage loan…register today for immediate access on your PC.