Mortgage Loan Origination Fees

Mortgage loan origination fees are a fee charged by the person arranging your loan and are a common way to overpay for your mortgage loan.

The origination fees you pay are just one of the ways mortgage brokers receive compensation for their work; there are other forms of compensation that raise your monthly payment and cost you thousands of dollars.

Here are several tips regarding Mortgage Loan Origination Fees to help you avoid paying too much for your next mortgage loans.

Mortgage Loan Origination Fees

Origination fees are also called origination points and are a fee charged by the person arranging your home loan at closing. Remember that one “point” is one percent of your loan amount. A reasonable amount to pay for mortgage loan origination fees is one point, or one percent of your loan amount; however, many brokers pad their fees and try and charge you much more. If you’re upfront with the broker when shopping around it is possible to find honest mortgage brokers willing to work for one percent.

Other Mortgage Broker Compensation

Mortgage brokers are basically salespeople reselling mortgage loans from wholesale lenders for a commission. Much like a salesman on a used car lot they’re looking to boost their commission in any way possible, even at your expense. This is the mortgage industry’s dirty little secret…lenders reward brokers that lock and close home loans with above market interest rates with a hefty commission. This commission often doubles, even triples the broker’s compensation from your loan…driving your monthly payment up unnecessarily.

Beware Yield Spread Premium

How does this unnecessary markup of your mortgage rate work? Did you know that for every .25 percent that your mortgage broker overcharges you the lender pays them one percent of your loan amount? That quarter point may not seem like much; however, many brokers don’t stop there and mark their loans up by as much as .75 percent or more. This markup adds hundreds of dollars to your monthly payment which is thousands of dollars you’re throwing away just to give the mortgage broker a bonus.

Mortgage brokers don’t talk about Yield Spread Premium because it is such a significant part of their bottom line. Many brokers become angry and defensive when questioned about Yield Spread Premium and have clever ways of hiding it in your loan documents. Were you charged a fee for locking in your mortgage rate and did the rate lock confirmation come on the broker’s letterhead? This is the first sign of a dishonest mortgage broker. Mortgage lenders DO NOT charge fees for locking in a mortgage rate… this “rate lock fee” is pure garbage. The fact that your rate lock confirmation did not come from the lender means the broker is hiding their markup of your mortgage rate because the lenders rate lock confirmation clearly shows any Yield Spread Premium associated with your mortgage rate.

How to Avoid Yield Spread Premium

Just like your origination fee, Yield Spread Premium on your mortgage loan can be negotiated. Look for mortgage brokers that are self employed working out of home or small office spaces. These brokers don’t have the overhead of large firms and are much more likely to negotiate with you on their fees. Tell the mortgage broker upfront that you will not accept any home loan that includes Yield Spread Premium and are willing to pay a one percent origination fee for their services. If the mortgage broker agrees to these terms when you lock in your rate make sure the rate lock confirmation comes from the lender and there is no Yield Spread Premium present on the lock.

What About Bank Mortgage Loans

Can’t you just avoid this entire mortgage broker hubbub by taking out your mortgage from a bank or credit union? While it is true banks are convenient when it comes to mortgage loans you’ll never get anything close to the deal you could get from a mortgage broker. Banks don’t charge Yield Spread Premium on their loans because they fund mortgage loans with the bank’s money; however, banks have their own markup, known as Service Release Premium. Your bank is not required to disclose anything about this markup to you due to a little known loophole in the Real Estate Settlement Procedures Act, meaning you’ll never know the rate you could have gotten from a mortgage broker.

Banks don’t offer their customer par mortgage rates, nor do most mortgage brokers. A par mortgage rate is one that doesn’t cost you discount points to get and does not create a commission for the broker from Yield Spread Premium. Getting a par mortgage rate for yourself is not as hard as you think; you don’t have to be a financial guru to negotiate a deal like the one I’ve described here… you just need to find the right mortgage broker for the job.

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The Hidden Cost Of Mortgage Points When Refinancing

Points are one of the most misunderstood aspects of mortgage loans.

In the simplest definition mortgage points are a percentage of your loan amount due at closing for one of two possible reasons.

Here are the basics you need to know about mortgage points and how you can decide if paying them is worthwhile when refinancing your home mortgage loan.

Types of Mortgage Points

Mortgage points come in two flavors. One point is equal to one percent of your mortgage amount and is the fee you’ll be required to pay at closing. There are the discount points you pay to the lender in exchange for a lower mortgage rate and the origination points you pay to the broker for their part in arranging your loan. Brokers and lenders do not always require that points be paid; however, some lenders hide their point requirements in the fine print hoping to distract you with an unnaturally low mortgage rate.

If you don’t agree to pay the points required for that low mortgage rate you’ll find the actual interest rate is often much higher than the going market rate. This is a common bait and switch tactic used by mortgage lenders to boost their profits. Fortunately once you understand how points work this is an easy scam to avoid.

Should You Pay Mortgage Points?

Deciding whether or not paying points to the lender is in your best interest depends on how long it will take you to recoup the expense based on the lower monthly payment you are getting. We’ve all seen the commercials on television promising insanely low rates with a lot of very small print flashed up on your screen. If you pause the commercial and squint you can just make out that this lender requires two points at closing to qualify for this low rate. Does it make sense to pay the fee?

You can easily determine this with a simple mortgage payment calculator. First compare the lower payment with points to the higher payment without points. The difference between the two payments is your monthly savings. Suppose you were refinancing a $200,000 loan with this lender. Two points would amount to $2,000 due at closing. If the monthly payment is $35 lower it will take you almost five years to recoup this expense. If you plan on staying in your home for the long term paying points can be beneficial; however, if you sell your home before this you’ll be losing money by paying points.

What About Origination Points?

Mortgage brokers often charge origination points for their part in arranging your loan. Not every mortgage charges origination points as brokers can receive compensation from the lender behind your loan. If your broker is charging you a fee for arranging your loan a reasonable fee to pay is 1-1.5% of your loan amount.

You can learn more about your mortgage refinancing options including costly mistakes to avoid by registering for my free video tutorial.

Florida Mortgage Rates

home loan Florida Mortgage RatesIf you’re like many Florida homeowners refinancing mortgage loans, finding the lowest mortgage rate is your primary concern when refinancing. Getting the lowest possible Florida mortgage rates takes more than just comparison shopping; you’ll need to understand how rate quotes work to get the best deal. Here are several tips to help you find the best mortgage when refinancing your Florida home loan.

Mortgage rate quotes

With the exception of Bank loans, mortgages are retail products resold by mortgage companies and brokers for profit. Mortgage brokers make their profits by charging you a fee and by marking up your mortgage rate. The quotes you receive when shopping for Florida mortgage rates all include markup by the broker to give them a commission.

The commission paid by the mortgage lender is called Yield Spread Premium and avoiding it needs to be your number one priority when refinancing your home. Yield Spread Premium Sounds scary but it’s a relatively simple concept to wrap your head around. When a lender approves your application they are approving you for a certain “wholesale” mortgage rate. Your mortgage broker marks this rate up to get a kickback from the lender…for every quarter percent you agree to overpay the broker gets paid one percent of your mortgage amount.

Florida Mortgage Rates and You

The problem with this commission based markup of your mortgage rate is that it’s never properly disclosed or explained. Yield Spread Premium adds thousands of dollars to your mortgage payment every year that you keep that loan, money you’re paying because the broker took advantage of you. Here’s an example to illustrate Yield Spread Premium and Florida mortgage rates.

Suppose you’re refinancing your Sarasota home for $300,000 with a fixed rate 30 year mortgage. The broker quotes you a mortgage rate of 7%….you’ve had some dings on your credit and need to consolidate your home equity loan so you agree to the loan. Your mortgage payment at 7% interest is $1,995 per month.

What your mortgage broker isn’t telling you is that you actually qualified for a 6.5% mortgage rate and they’ve marked it up to 7% to get a 2% commission from the lender. This commission is paid in addition to the 1% origination fee that they’re charging you. The broker walks away with 3% and you get stuck paying more than you need to…but exactly how much more?

The same loan with a 6.5% mortgage rate has a monthly payment of only $1890! That’s an additional $1,260 you’ll be paying every year just to give your mortgage broker a bonus. Over the next five years this balloons up to $6,300! How many other uses do you have for your own money besides giving it to someone that lied to you?

The good news for the Sarasota Florida homeowner in this example is that Yield Spread Premium can be avoided. By doing your homework you can learn to recognize this unnecessary markup and avoid junk fees in the process. You can learn more about doing this for your home by registering for my free mortgage video tutorial.

Mortgage Points – What You Need to Know

mortgage rate Mortgage Points – What You Need to KnowIf you are in the process of purchasing your home or refinancing your existing mortgage you will most likely encounter the term “points.” What are points and is it ever in your best interest to fork over additional cash at closing? Here are the basics you need to understand about mortgage points and whether or not it’s in your best interest to pay them.

Mortgage Points Come In Two Flavors

There are two varieties of mortgage points. The first are the origination points you pay for your loan originators part in arranging your loan. Your loan originator could be a mortgage company, internet mortgage site, your bank, or a mortgage broker. Origination fees vary widely and are one of the reasons many homeowners overpay for their mortgage loans. How much is a reasonable amount to pay for your mortgage origination points? A reasonable fee to pay is one percent of your loan amount and not a penny more.

One Mortgage Point = One Percent of Your Loan Amount

The second type of mortgage points you will encounter are the “discount” points you pay in exchange for something from the lender, usually a lower mortgage rate. Discount points can be used for other reasons when negotiating; for example you could negotiate to pay discount points in exchange for a certain rate and not having a prepayment penalty included in your loan contract. Don’t underestimate your ability to negotiate with mortgage lenders, especially with the current economy. Mortgage lenders are hurting and are desperate to close loans. You can leverage this to your advantage when negotiating for loan terms.

Should You Pay Discount Points?

The decision to pay discount points depends on your financial situation and what you have to gain by paying this fee. One of the main factors to consider is how long it will take you to recoup the expense from paying discount points with the lower mortgage payment. You can easily calculate how long this will take by dividing the amount you’ll pay in discount points by how much lower your mortgage payment will be because of the fee. This will tell you the number of months it will take you to recoup paying discount fees before you realize any savings. If you plan on selling your house within the next five years or in the amount of time you calculated above, it doesn’t make sense to pay discount points.

There Are Tax Advantages When Paying Discount Points

Paying discount points will earn you a tax deduction in most cases. According to the IRS the discount points you pay are prepaid mortgage interest. There are stipulations and you may or may not be able to deduct the full amount in one year according to IRS rules; however, this prepaid interest can certainly reduce your tax liability if you itemize deductions on your tax returns.