Verbal Interest Rate Lock

If you are in the process of refinancing your home mortgage there are a number of costly pitfalls that can lead to overpaying thousands of dollars.

Rate locks are commonly misunderstood by many homeowners and not locking properly can lead to an expensive mistake. Here are several tips to help you avoid paying too much for your next home mortgage loan.

Verbal Interest Rate Lock

When it comes to locking in your mortgage rate there is one simple rule. If you haven’t got it in writing, you haven’t got it at all. When it comes to mortgage loans, verbal agreements just don’t exist. You must get it in writing AND the rate lock confirmation HAS to come from the lender, not your mortgage broker. Here’s why.

Many mortgage brokers try and pass off rate lock confirmation written on their own company letterhead. If you have a document from your mortgage broker confirming rate lock, then you do not have written confirmation of the lock. Mortgage brokers do this to conceal the commission they are getting from the lender for marking up your mortgage rate. Lenders pay a premium to mortgage brokers that lock and close home loans with higher than market interest rates. This commission paid to your mortgage broker is known as Yield Spread Premium and can unknowingly cost you thousands of dollars per year.

Bottom line, if your mortgage broker tells you that you have verbally locked your interest rate or they give you a bogus written confirmation typed up on their own letterhead, your mortgage broker is hiding the fact that they’re ripping you off.

Mortgage Yield Spread Premium

Mortgage brokers are compensated for their work by charging you an origination fee for arranging your home loan. They can also receive a commission from the lender for marking up your mortgage rate. For every .25 percent that you agree to overpay when refinancing your mortgage loan, the broker receives a commission of one percent of your loan amount for overcharging you. This markup of .25 percent may not seem like much; however, many brokers charge as much as .75 percent (or more) and over the course of a year this can have a dramatic affect on your mortgage payments.

Here’s a simple example to illustrate how commission based markup of your mortgage rate results in paying too much. Suppose for example you are refinancing your home for $315,000. Your broker quotes you a mortgage rate of 5.75 percent and charges you a fee of 1.5 percent for arranging your loan. On paper these numbers should good; however, consider the 1.5 percent or $4,725 that you’re paying the mortgage broker for “getting you a good deal.”

What your mortgage broker isn’t telling you is that your lender qualified
you for a 5.0 percent mortgage rate but your broker marked it up to 5.75 percent to get a 3.0 percent commission from the lender. That means your broker pockets your $4,725 AND $9,450 from the mortgage lender…that’s a total of $14,175 for overcharging you on your home mortgage loan.

How does this .75 percent affect your mortgage payment amount? Plug the numbers into a simple mortgage payment calculator and you’ll see that in this example the payment amount for a 30 year, fixed-rate mortgage loan of $315,000 at 5.75 percent will be $1,840 per month. If you had the mortgage rate you deserve at 5.0 percent your monthly payment would only be $1,690. That’s a savings of $150 per month or $1,800 per year!

Now you know that a verbal interest rate lock is not the right way to refinance because your mortgage broker is using it to conceal the Yield Spread Premium on your home loan. How can you avoid this costly and unnecessary markup of your mortgage interest rate?

How to Avoid Overpaying Your Mortgage Broker

To avoid paying Yield Spread Premium when refinancing your home loan you simply need to find the right mortgage broker for the job. There are honest brokers out there willing to refinance your home for a flat one percent origination fee without charging Yield Spread Premium on your loan… you just need to find the right one. You don’t have to be a financial guru to pull this off either; learn the lingo and a few tips for negotiation with your mortgage broker and you can walk away with the deal I’m describing for your next home loan. My underground mortgage videos show you how to do just this…all of the information you need to save thousands of dollars on your next mortgage in one easy to follow video tutorial.

So who is the right mortgage broker? It’s probably not going to be the brokers with the full page advertisement in your phone book or the one with a company hummer plastered with their logo. Mortgage brokers with advertising budgets, expensive sales staff, posh office spaces, and company hummers all have enormous operating expenses and will most likely be unwilling or unable to negotiate the type of deal you’re looking for when refinancing your home mortgage.

The right person for the job is a small time self-employed mortgage broker often working from home. This person will have been working as mortgage broker for at least ten years. This kind of mortgage broker will be much more likely to agree to refinance you home for a one percent origination fee without bringing Yield Spread Premium into the picture. You’ll also need to know which fees are garbage and need to be avoided… fees like mortgage broker courier fees for example. You’ll need to know where to spot and how to recognize these junks fees; here’s a tip, you won’t find them on your Good Faith Estimate.

Good Faith Estimate

Speaking of the Good Faith Estimate (GFE), don’t put much faith in this document. The GFE has become little more than a marketing tool used along with the Annual Percentage Rate (APR) to lure unsuspecting homeowners into overpriced mortgage loans. Truth in lending laws require that lenders provide you these documents; however, there are very few standards for what mortgage lenders are required to disclose. Fortunately your lender is required to give you one document prior to closing that will reveal everything your mortgage broker may be working so hard to conceal…

You can learn more about mortgage refinancing without the unnecessary markup of your mortgage rate and lender junk fees by registering for my Underground Mortgage Videos. Register today and you’ll have immediate access in the password protected member’s area to all the mortgage videos without downloading anything to your PC or Mac.

Can You Break Your Mortgage Rate Lock?

Since mortgage rates have been in near freefall this week several people have asked me about breaking mortgage rate locks. Here’s the skinny you need to know about locking in your mortgage rate.

Can you break your mortgage rate lock and walk away from the table at any time?

While most mortgage brokers will tell you that a rate lock is an agreement between you and the lender that you cannot walk away from, the truth is that you can and the pressure you mortgage broker is applying is a load of crap. Can’t say that I blame them, after all their commissions are on the line…but the truth is you can walk away from the table at any time…Even After You’ve Signed The Contract.

Mortgage Rate Locks

home equity Can You Break Your Mortgage Rate Lock?What is a mortgage rate lock? Really all rate locks are is a “promise” from your lender to give you a certain mortgage rate if you close before the lock expires. Are mortgage lenders obligated to honor their rate locks?

The answer may surprise you… No, lenders are not obligated to honor thier own rate locks. Mortgage lenders build so much wiggle room into their rate locks they can back out of them almost at will. You’re not signing a contract when you lock in your mortgage rate but if rates go down 99% of lenders will not give you the lower rate.

If your mortgage lender refuses to give you the lower rate why should you stay? A mortgage is a huge financial commitment and you should make sure you’re getting the best possible deal before signing on the dotted line. Don’t ever let a mortgage broker or lender pressure you into thinking that since you’ve locked in a mortgage rate you’re obligated to take out the loan. This type of pressure sales is not only unethical but a despicable practice.

Your Rights Under The Law

You can walk away from the table at any time. If you’re being pressured by a broker or your gut tells you something isn’t right, walk away. Mortgage brokers and lenders are a dime a dozen and there are honest people working in this industry that want to get you a good deal in exchange for your business. What can you do if you already signed the loan contract? You still have time to change your mind. There are three business days before your loan is funded that you can change your mind and walk away from the deal. See Three Day Rescission for more information about backing out before your loan is funded.

To summarize, a rate lock does not mean you are obligated to borrow. Never let anyone pressure you into any type of loan…this is a sure recipe for disaster. Do your homework, learn about Yield Spread Premium and make informed decisions when it comes to your mortgage. All the information you need to do this is available for free on this website.

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Mortgage Rates – Locking in Your Interest Rate

If you’re in the process of refinancing your mortgage you might be losing sleep over your rate lock. Last week mortgage rates rose from 5.6% to 5.8% almost overnight. If you didn’t lock your rate in writing you’re looking at higher mortgage rates this week. Here are the basics you need to know about locking in your mortgage rate when refinancing.

Locking in Your Mortgage Rate

The purpose of a mortgage rate lock is to hold the interest rate you agreed long enough to give you time for closing. You must have written confirmation of your rate lock or you do not have an agreement with the lender. Even when you get your mortgage rate locked in writing, rate lock agreements guarantee very little and are usually structured so that the lender can change the agreement at will. Despite this lack of confidence in your lenders written word it is still better to lock in writing than not at all.

What Documents Lock in Your Mortgage Rate?

Once you notify your broker that you want to lock a specific mortgage rate you should receive a written rate lock confirmation from the lender. This document will be faxed, emailed, or created online for your broker confirming the lock. Your rate lock outlines the terms of your mortgage including rate, points, Yield Spread Premium and the expiration date of the lock.

Make sure that this document comes from the lender, not your mortgage broker. Your broker can never guarantee a rate that isn’t locked by the wholesale lender. A common bait and switch tactic used by many brokers is providing bogus or doctored rate lock confirmation and then switching you to a higher priced loan offer when the deal falls through. When this happens a dishonest mortgage broker will often blame you and say the rate lock expired because of something you did.

Your mortgage broker may also give you a doctored rate lock confirmation because their markup of your mortgage rate will be clearly displayed on this document. This commission based markup of your mortgage rate is not only completely unnecessary but is completely dishonest in most cases.

You can learn more about protecting yourself from shady mortgage brokers with my free mortgage refinancing videos.