If you are in the process or are considering a mortgage refinance, there are several things you need to know to avoid paying too much for your next home loan. Refinancing can lower your mortgage rate and monthly payment saving you money for other things.
In order to refinance your home loan without overpaying and getting the lowest possible rate there are number of things you need to know that are commonly overlooked by most homeowners. Here are several Mortgage Refinance Secrets that can save you thousands of dollars on your next home loan.
Mortgage Basics: Paying Points
Mortgage Points are a fee you pay upfront when taking out a new loan or refinancing your existing mortgage. Points come in two varieties: there are “discount” points you pay the lender in exchange for lowering your mortgage rate and the origination points you pay to the person arranging your loan. The decision to pay discount points should be made considering how long you plan on staying in your home and how long it will take you to recoup this expense. Mortgage rates are currently at historically low levels…most homeowners should think long and hard before agreeing to pay discount points, and then only there are no other options.
What About Mortgage Origination Fees?
Mortgage origination points are entirely different and bring about their own problems. This fee is frequently abused and can range anywhere from zero to as much as five percent. If you follow the RefiAdvisor system when refinancing your mortgage you will be able to refinance paying only a flat one percent origination fee to the broker. This means there will be no markup of your mortgage rate for a commission which results in a higher monthly payment for as long as you keep the loan.
Choosing The Right Loan Term Length
Term length is the amount of time you have to repay your mortgage and along with mortgage rate determines how much your monthly payment will be. Term lengths range from one to forty years; however, the most common choices are fifteen year mortgages when refinancing and thirty years for purchase loans. Each type of term length has its advantages. If you need the lowest mortgage payment possible choose a loan with a longer term length. If your goal is to restore equity in your home as quickly as possible after refinancing, choosing a mortgage term length of fifteen years could help you accomplish this goal.
Choosing The Right Mortgage Rate Type
One of the most important decisions you will need to make when refinancing your home loan is which type of mortgage rate to choose. Mortgage rates come in the fixed variety which gives you a monthly payment amount that will not change for the duration of your loan and the Adjustable Rate Mortgage which will change at regular intervals over the course of your loan. Adjustable Rate Mortgages typically come with lower rates than fixed rate loans; however, you run the risk of payment shock when rates go up and the lender adjusts your loan.
Mortgage Secrets: Yield Spread Premium
You may be reading this article saying to yourself “this is pretty basic stuff…where are the secrets?” Here’s one secret few homeowners know about…and it’s a big one. I’m talking about Yield Spread Premium and it is considered by many to be the mortgage industry’s dirty little secret.
Yield Spread Premium is a percentage of your mortgage amount created when the person arranging your loan locks and closes with a higher than necessary mortgage rate. I say higher than necessary because the lender approved you for a lower mortgage rate except the person arranging your loan has marked it up to get a commission from the lender. You should note that this commission is paid in addition to any origination points you are already paying for this person’s services and this markup is almost always done without your knowledge or consent.
Yield Spread Premium Example
Here’s a common example to illustrate how Yield Spread Premium drives up your monthly mortgage payment unnecessarily. Suppose you are refinancing your existing home loan for $325,000. Your mortgage broker tells you that based on your credit and qualifying ratios that you qualify for a mortgage rate of 6.75% and charges you a loan origination fee of 3% or in this example $9,750. First of all, if you registered for the free videos on this website you know that 3% is highway robbery and you can refinance paying 1% to the broker or $3,250; however, in this example we’ll assume you passed up the opportunity to watch these free videos and the origination fee is going to cost you almost $10,000.
Your monthly payment at 6.75% on a thirty year fixed-rate mortgage will be $2,100. What your mortgage broker isn’t telling you is that you actually qualify for a 6.0% mortgage rate that would have given you a monthly payment of $1,940. That’s a difference of $160 per month or $1,920 that you’re overpaying each and every year that you keep this loan. What’s in it for the mortgage broker to overcharge you? For every .25% that your broker marks up your mortgage rate the lender pays them 1.0% of your loan amount. In this example the broker walked away with an additional $9,750 from the lender on top of what you’re already overpaying. Your mortgage broker banked $19,500 refinancing your home loan and of course lying to you about the mortgage rate.
That’s horrible! Are mortgage brokers really this bad? Worse than used a car salesmen? YES! Well, not all of them. Your job when refinancing your home loan is to find the right mortgage broker willing to refinance your home loan for a flat origination fee without including Yield Spread Premium on your loan. You can learn how to do this for yourself with an easy-to-follow system that offers proven results by registering for the free videos on this website.
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.
