Mortgage refinancing offers many advantages and potential savings; however, there are a number of risks and expenses that you should keep in mind. If you are refinancing because your existing mortgage has an adjustable interest rate you can minimize your risks by choosing a mortgage with a fixed interest rate; however, anytime you take out a new mortgage you run the risk of overpaying for the new loan. Here are several tips to help you protect yourself from lender abuses when refinancing your mortgage.
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that can save you thousands of dollars on your next home loan.
The main objective for many homeowners when refinancing is to obtain a loan with a lower mortgage rate and better terms. A lower monthly payment isn’t the objective for every homeowner; some people refinance their mortgages with a higher monthly payment in order to pay down their mortgages more quickly. Regardless of your objective for the new mortgage there are steps you can take to ensure your mortgage broker and lender are not taking advantage of you when refinancing.
One of the risks you encounter when refinancing your mortgage is the markup your broker adds to your interest rate to get a commission from the lender. This markup of your mortgage interest rate is called Yield Spread Premium and according to the Department of Housing and Urban Development is responsible for homeowners in the United States overpaying billions of dollars each year.
Yield Spread Premium can be avoided when refinancing your mortgage. You’ll be required to pay an origination fee for your mortgage broker’s services; a reasonable amount to pay for refinancing your mortgage is one percent of the loan amount. Because you’re paying this fee any commission from the lender is not only completely unnecessary but is taking advantage of you. Talk to potential mortgage brokers before entering an agreement and explain that you understand how Yield Spread Premium works and will not tolerate this unnecessary markup with refinancing.
There are other risks from hidden fees and penalties when refinancing your mortgage. Make sure your existing mortgage does not include a prepayment penalty; lenders frequently include hefty penalties to discourage their borrowers from refinancing the loan. These penalties are unnecessary and can be as high as six months of interest on your original loan balance. If you’re unsure whether or not your existing mortgage includes a prepayment penalty contact your lender prior to applying for a new loan.
You can learn more about minimizing your risks when refinancing and other costly pitfalls to avoid with a free six-part video tutorial. The videos walk you through the entire process of refinancing without paying too much and are broken up into the following sections:
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