If you’ve been sitting on the fence about refinancing your home mortgage and are discouraged by reports of rising interest rates, it’s not too late to lower your monthly payment and put some cash in your pocket in the process.
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that can save you thousands of dollars on your next home loan.
There are several refinancing pitfalls you need to be aware of that drive up your mortgage rate and monthly payment; however, once you find the right person to arrange your new home loan you’ll be able to refinance without paying too much.
Here are several tips to help you get the lowest possible mortgage rate and monthly payment when refinancing your home loan.
Understanding Mortgage Rates
Notice that I said “find the right person to arrange your home loan.” You’re not going to get the best possible deal refinancing your home with a bank or one of the so called “Direct Lenders” you see advertising home loans. The reason for this is that almost every mortgage quote you’ll receive when refinancing has markup built into it to create a commission for the person arranging it, or a premium when your loan is sold. This markup of your mortgage rate is rarely talked about and cryptically disclosed only part of the time. What is this mortgage markup I’m talking about?
There are two basic ways of refinancing your home mortgage loan. The first is by contacting your bank or credit union. Banks are direct lenders and cut out the middleman when refinancing right? Yes…somewhat; however, you’ll still face the same markup of your mortgage rate by a different name, driving up your monthly payment unnecessarily. Of course your banker will never admit this thanks to a loophole in the Real Estate Settlement Procedures Act… banks are exempt from disclosing any of their markup or profit margin on your loan. Your banker will probably show you the bank’s mortgage rate sheets for the day, swearing they’re not marked up; however, unless you know how to recognize this markup you’ll never know how low your mortgage rate could have been.
The second way people refinance their mortgages is with a mortgage broker. I know what you’re thinking; mortgage brokers have earned themselves a reputation for being sleaze buckets lower than a used car salesman… and in many cases rightly so. Mortgage brokers do have one redeeming quality in that they have access to wholesale mortgage rates. Most mortgage brokers aren’t going to let you have a wholesale rate, unless you know how to get it. That is the purpose of this article and the mortgage videos on this website.
How to Get The Lowest Possible Mortgage Rate
It’s true that mortgage rates are rising; however, would you know to recognize mortgage rate markup if you saw it? Don’t worry if you wouldn’t, most homeowners don’t know what the markup is let alone know how to recognize and avoid it. So what is this nefarious mortgage rate markup that drives up your monthly payment for no good reason? Before we discuss that I need to give you the framework for your ideal mortgage rate. What is ideal? In the industry the ideal rate is called a “par mortgage rate.” Simply put, a par mortgage rate is one that doesn’t cost you anything to get out of pocket in the form of discount points and does not create an “extra” commission for the person arranging your loan.
Remember that discount points are a fee you pay in exchange for a lower interest rate and that one point is one percent of your loan amount. On a $200,000 mortgage loan one discount point would be $2,000 due at closing. Mortgage rates are low enough that you’ll want to avoid paying discount points whenever possible. Get yourself a par mortgage rate and you won’t have to pay any discount points at all. The other type of points you’ll encounter are origination points. This is the mortgage broker’s fee for arranging your home loan. One percent is reasonable, it is not necessary to pay more.
What about this extra commission? Mortgage rates that have been marked up by the person arranging the loan create a commission or a “kickback” from the lender. This kickback is called Yield Spread Premium and costs the average homeowner in excess of $1,000 per year. Most people have a mortgage that includes this form of markup; in fact, the Secretary of Housing and Urban Development recently said homeowners overpay nearly sixteen billion dollars every year because of it. That includes your smug neighbor down the street…that guy’s overpaying too. Just think… you’re going to have a better mortgage loan that that guy once I’m finished with you.
Mortgage Yield Spread Premium
This markup of your mortgage interest rate for a commission known as Yield Spread Premium results when your mortgage broker locks and closes your home loan with a higher than necessary mortgage rate. There are several documents you receive in the process of refinancing your home that disclose Yield Spread Premium, if you know what you’re looking for. Your first opportunity to spot this unnecessary markup of your loan is when you lock your mortgage rate.
We all know locking is supposed to “guarantee” your mortgage rate for a period of time so that you can close on the loan. Some dishonest mortgage brokers charge a fee for locking your mortgage rate, but you should know there isn’t a single mortgage lender in the country that charges this for locking and it is pure garbage. Once you’ve you locked in your mortgage rate you should receive written confirmation of the lock from the mortgage lender. Never accept a verbal mortgage rate lock or any written confirmation that comes from the broker or mortgage company. If you don’t have written confirmation from the lender you either haven’t locked or the broker is trying to hide their markup of your mortgage rate. Any Yield Spread Premium on your mortgage loan will be clearly disclosed on your lender’s rate lock confirmation.
Your second opportunity to spot Yield Spread Premium on your mortgage loan when refinancing is just prior to closing when you receive the HUD-1 Settlement Statement. You’ll find Yield Spread Premium disclosed in section 800 of this document; although the lender might have a cryptic name for the fee. Often the markup is disclosed as “Paid Outside of Closing” or POC charges.
You can learn more about refinancing your home without unnecessary markup of your mortgage rate to get the lowest payment possible while avoiding junk fees by registering for my Underground Mortgage Videos. Here’s a sample with more you need to know about when to refinance and the unnecessary markup of your mortgage rate.
Register today and you’ll get instant online access to everything you need to get a par mortgage rate for yourself when refinancing without downloading anything to your PC or Mac.