Types of Mortgage Loans

Are you new to the refinancing game? If so, understanding the types of mortgage loans and available programs is a solid starting point for saving money. Until you choose a mortgage program it’s next to impossible to make an apples-to-apples comparison of refinance rates and fees across different lenders. Here are the basic types of mortgage loans you need to know to make an informed decision for your next home loan.

Types of Mortgage Loans You Need to Know

The most common of the different types of mortgage loans is the conventional, 30-year fixed rate home loan. This is the mortgage your parents had. Once you’ve got one the terms, interest rate and payment won’t change until the day you pay it off.

The 30-year fixed rate home loan is the most common and the least risky of all the types of mortgage loans. It is also one of the more expensive refinancing options. Before getting to the other types of mortgage loans we need to talk about conforming vs. non-conforming.

Conforming vs. Non-Conforming Mortgage Loans

You’ll see the terms “conforming” and “conventional” thrown around a lot, almost interchangeably.

What are conforming mortgage loans? Conforming refers to the dollar amount you’re financing in the eyes of Fannie Mae and Freddie Mac. The conforming loan limit is set each year by these quasi-government agencies, Fannie Mae & Freddie Mac are tasked with helping American homeowners by limiting risk for mortgage lenders.

Fannie Mae and Freddie Mac do this by guaranteeing mortgage loans against default and ensuring lenders have funds available for home loans. If your mortgage is over the conforming loan limit it is essentially too big for Fannie Mae and Freddie Mac to cover and is called non-conforming.

In 2013 the conforming loan limit is $417,000. If your home loan is over the conforming loan limit it is considered a jumbo mortgage loan. (Another one of the types of mortgage loans)

Adjustable Rate Mortgage Loans

If your goal for refinancing your mortgage is to get the lowest payment possible one of the types of mortgage loans you’ll want to consider is the Adjustable Rate Mortgage (ARM). These home loans have more risk than their fixed rate counterparts because if interest rates go up when your home loan resets the payment will also increase.

You’ll see Adjustable Rate Mortgage loans designated 5/1, 7/1, or 10/1. The first number represents the fixed rate period of the ARM. The 5/1 ARM for example is fixed for the first five years. The second number is the amount of time your ARM resets. The 5/1 ARM is fixed for the first five years but resets once every year after that.

Adjustable Rate Mortgage loans are a popular choice for real estate investors that are able to leverage the lower fixed-rate period and sell before the ARM resets. When your ARM resets your mortgage servicer will recalculate your payment based on whatever index your ARM is tied, frequently the LIBOR index.

Thanks to the uncertain nature of Adjustable Rate Mortgage loans the risk is higher; however, you will generally have lower payments by choosing an ARM.

Mortgage Loan Term Length

When discussing the types of mortgage loans it’s important to understand how term length works. The term length of your home loan is the amount of time you have to repay the debt. Along with your interest rate term length determines your monthly payment amount.

You can use a simple mortgage calculator like the one below to see how mortgage term affects your payments. Generally, the longer your term the lower your payments are because they’re spread out over more time. Conversely, the shorter your term length the higher your payments will be; however, the advantage of shorter terms is that you’re building equity at a faster rate.

Simple Mortgage Calculator

Loan Amount: Years: Mortgage Rate:

Annual Taxes: Annual Insurance:

Monthly Payment =

Mortgage amortization describes the process of paying down your home loan. Your home loan is front-loaded with interest meaning in the early years the majority of your payment goes to pay the lender’s finance charges. Over time this gradually reverses with more of your payment going to build equity in your home.

Government Refinance Programs

When discussing the types of mortgage loans there are a variety of government refinance programs that you need to know about. These programs are administered by the FHA, VA, and USDA. If you already have a home loan backed by one of these agencies and are considering refinancing, each agency offers streamline refinance loans. The FHA streamline refinance for example offers reduced paperwork and faster processing than a traditional refinance loan.

Types of Government Refinance Programs

  • FHA Home Loans
  • FHA home loans are insured by the Federal Housing Administration against default. These home loans are a popular choice for individuals with credit challenges as the qualifications are easier. The downside of an FHA mortgage is that you’re required to pay for mortgage insurance which can add hundreds of dollars to your monthly payment.

  • VA Home Loans
  • If you served in the military the VA home loan is simply the best deal going. VA home loans offer lower interest rates and unlike FHA backed loans do not require mortgage insurance. The VA offers a streamline refinance program called an Interest Rate Reduction Refinance Loan (IRRRL).

  • USDA Home Loans
  • The USDA programs exist to promote home ownership in rural areas. USDA home loans have easy qualifications; however, like FHA home loans they require mortgage insurance.

  • Home Affordable Refinance Program (HARP 2.0)
  • The Home Affordable Refinance Program, also called HARP 2.0, allows underwater homeowners that have previously been unable to refinance to qualify. In order to qualify for this program you must not have late payments for the last year and your mortgage must be backed by Fannie Mae or Freddie Mac.

You can learn more about government refinance programs by contacting the Homeowners Hope Hotline at 1-888-995-HOPE (4673).

No-Doc & Low-Doc Mortgage Loans

There are still a great number of homeowners searching for no-doc or low-doc mortgage loans. Before the housing bubble burst lenders offered no-doc mortgage loans. These were also called stated-income home loans because you simply “stated” your income and assets, scout’s honor.

Granted you still needed a spectacular credit rating to qualify for no-doc and low-doc mortgage loans; however, these loans simply don’t exist anymore.

Choose a Mortgage Program & Stick With It

We’ve covered the basic types of mortgage loans that you need to know about. The first step when shopping for the best deal on your next home loan is to choose a mortgage program and stick with it.

If you want a 30-year fixed rate mortgage don’t let a fast-talking loan officer confuse you by quoting interest rates and fees from a 15-year ARM.

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You can learn more about getting the best deal by avoiding unnecessary fees and points from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

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Mortgage Rate Watch

If you’ve been keeping an eye on recent mortgage rate trends or are searching the web for mortgage rates before refinancing your home there are several things you need to know about mortgage quotes you find online. Internet mortgage giants and even your local mom and pop mortgage broker quote mortgage rates that have been marked up to create the commission known as Yield Spread Premium. Never heard of Yield Spread Premium? Don’t sweat it, neither have 98% of your neighbors. According to the Secretary of Housing and Urban Development your neighbors, in fact most Americans, will overpay sixteen billion dollars for their home loans this year alone. Here’s how you can avoid being part of this statistic and get the best mortgage refinancing rates for your next home loan without paying unnecessary closing costs.

Yield Spread Premium Definition

So what is this Yield Spread Premium? Simply put it is a commission paid by the lender to the person arranging your mortgage for locking and closing with a higher than necessary mortgage rate. Yield Spread Premium is paid in addition to loan origination fees you’re already paying this person for the work they do arranging your home loan. Think of Yield Spread Premium as a form of “double dipping” at your expense.

You might think “Why do I care about Yield Spread Premium if the fee is being paid by the lender and not coming out of my pocket?” This is in fact an argument put forth by many mortgage brokers. They tell you not worry about the paid outside of closing (POC charges) found on your Good Faith Estimate and HUD-1 Settlement Statement because the fees are paid by the lender. Think for a moment why would the lender pay this fee for you? I mean really, what’s in it for them? We’ve all learned how evil and greedy banks and credit card companies are after the recent financial bailouts so why would they do anything that cost them a buck?

The reason mortgage lenders pay your mortgage broker Yield Spread Premium is because there IS something in it for them. In fact, Yield Spread Premium is the reason lenders realize the majority of their profits on your home mortgage loan. You see lenders don’t just sit around collecting interest from your home loan to make a buck. Mortgage lenders sell their home loans to investors on the secondary market. Home loans with higher than market mortgage rates bring them the most profit. This is why mortgage lenders reward mortgage brokers for closing loans with higher than necessary mortgage rates…the higher the mortgage rate, the higher the reward. Unfortunately for you, the higher your mortgage rate, the higher your monthly payment will be; however, an unnecessarily high mortgage payment can be avoided.

Avoiding Yield Spread Premium

Feeling overwhelmed with the prospect of refinancing your mortgage? Don’t sweat it…you don’t have to be a financial guru to get a wholesale mortgage rate that doesn’t include Yield Spread Premium. All you need to do to avoid this unnecessary markup is find the right person to arrange your next home loan. Start by approaching local mortgage brokers and tell them you understand how Yield Spread Premium works. Offer to pay a flat origination fee for their services of one percent and be sure to tell them that you won’t accept any mortgage loan that includes Yield Spread Premium.

You can learn more about getting a wholesale mortgage rate for your next home loan while avoiding unnecessary closing costs by registering for my free Underground Mortgage Videos.

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Here’s a sample of what you get for free you sign up…this video shows why your neighbors pay too much for their home loans and how you can avoid unnecessary markup and junk fees.

Best Refinance Mortgage Loan

Are you considering refinancing your home loan and are searching the Internet for the best refinance mortgage?

If so, there are several things you should know about the mortgage rate quotes you find online, even those from your local mortgage broker.

Here are several tips to help you find the Best Refinance Mortgage while avoiding paying too much in interest rate markup and mortgage junk fees.

Finding the Best Refinance Mortgage Online

Did you know that 99% of the mortgage quotes you get today have been marked up to give someone a commission? This is a commission you’ll pay in addition to the loan origination fee. Does it make sense to pay double for your mortgage loan? The problem accepting a mortgage rate quote that includes markup for a commission is that you’ll keep paying the mortgage broker’s fee over and over again every year for as long as you keep the loan. Doesn’t it make more sense to pay a flat mortgage origination fee of one percent and get the broker out of your life for good?

Mortgage Broker Markup

So what is this nefarious markup of your mortgage interest rate that costs the average homeowner $1,200 per year? Simply put, mortgage brokers get a kickback from lenders for locking and closing your home loan with higher than market rates. What are market mortgage rates? Also known as “par” mortgage rates, this is one that does not cost you discount points to get and does not create a kickback for your broker. Here’s how it works. Your mortgage broker quotes you an interest rate based on how much they think you’ll agree to overpay. The broker knows what mortgage rate you were approved for; however, for every .25% they overcharge you the lender pays the broker one percent of your loan amount in addition to the origination fee you’re probably overpaying for the broker’s services.

How to Avoid Yield Spread Premium

This kickback paid the lender for the mortgage broker overcharging you is called Yield Spread Premium. Most homeowners have never heard of Yield Spread Premium and the abuse is so rampant that the Secretary of Housing and Urban Development recently stated American homeowners will overpay sixteen billion dollars this year alone because of it.

Fortunately Yield Spread Premium can be avoided. There are a handful of honest mortgage brokers out there willing to help you find the best refinance mortgage available without overcharging you in the process. A reasonable fee to pay for your loan origination is a flat one percent; you just need to find the right person to arrange your loan.

Banks Will Not Give You Par Mortgage Rates

Many homeowners think they can avoid markup and mortgage junk fees by refinancing with their bank or credit union. The problem is while its true banks don’t have the same markup as your mortgage broker on their loans they still markup interest rates to make a premium profit when your loan is sold. Also, due to a loophole in the Real Estate Settlement Procedures Act your bank isn’t required to tell you that they’ve marked up your rate or disclose their profit margin on your loan. Banks simply don’t offer their customers par mortgage rates…if you want best mortgage refinance possible you’ll have to use a mortgage broker to arrange your loan.

How to get the Best Refinance Mortgage

You can refinance your home loan by paying a flat one percent origination fee without junk fees or a mortgage that includes Yield Spread Premium; you just need to find the right mortgage broker for the job. Don’t get me wrong, not all mortgage brokers are dirty and rip off their customers; however, they have earned the reputation they deserve which is why you need to take steps to keep your broker honest when mortgage refinancing.

How to Keep Your Mortgage Broker Honest

You can keep your mortgage broker honest by reviewing key pieces of documentation before signing your loan contract. Don’t worry about making a mistake during the process; your three day recission rights allow you to back out of the deal up to three business days after signing before your mortgage loan is funded. Here are the documents you need to focus your attention on to get the best refinance mortgage possible.

First, make sure your loan does not create Yield Spread Premium for the mortgage broker. Tell your broker that you will pay a reasonable amount for the origination fee but will not accept a mortgage that creates Yield Spread Premium. Once you find a mortgage broker willing to arrange your loan with these terms you will need to pay close attention to the following two loan documents. First, once you lock in your mortgage rate you will need written confirmation of your lock from the lender. The lender’s written rate lock confirmation will clearly disclose any Yield Spread Premium being paid to your mortgage broker.

Make sure the written rate lock confirmation provided by your mortgage broker comes from the lender and is not something your mortgage broker typed up for you. Many brokers do this to conceal the Yield Spread Premium they are taking on your mortgage. Also, never accept verbal confirmation of your mortgage rate lock. If you don’t have your lock in writing from the lender then you haven’t locked. Period.

The second document you need to focus your attention on to get the best refinance mortgage is the HUD-1 settlement statement. This document will disclose all fees, including mortgage junk fees and Yield Spread Premium. Outlining all of the fees and markup you need to look out for is beyond the scope of this article and is covered in detail in my Underground Mortgage Videos.

You can learn more about finding the best refinance mortgage without paying junk fees or markup of your interest rate by checking out my Underground Mortgage Videos. Here’s a sample of what you’ll get when you sign up today. This module is called “Your Mortgage Lender’s Dirty Little Secret…”

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Should Banks do Mortgages?

Are you considering refinancing your home mortgage loan with your bank or credit union?

There are several good reasons for considering taking out a new mortgage loan from your bank; however, there is one glaring problem with bank originated mortgage loans. Should banks do mortgages?

The following discussion about your bank’s dirty little secret could save you thousands of dollars on your next mortgage loan.

Should Banks do Mortgages?

What could be more convenient than making an online transfer from your checking account to your mortgage loan? Click, click…done. If you’re at that stage in your relationship with your bank and your mortgage loan you’ve probably already paid too much. Here’s why.

Real Estate Settlement Procedures Act

Also known as RESPA, the Real Estate Settlement Procedures Act is a very important bit of legislation that protects homeowners in the United States from predatory lending practices. Except for one not so small problem: the Banking Lobby spent millions of dollars lobbying Congress to have the laws changed so that your banks and credit unions are exempt from having to disclose their markup and profit margins from your home loan…and they pulled it off.

Service Release Premium

If you’ve spent any amount of time reading the mortgage articles on this site or watching the underground mortgage videos available on this website, you’re already familiar with Yield Spread Premium. For the uninitiated, Yield Spread Premium is a kickback that lenders pay to your mortgage broker for locking and closing your mortgage loan with a higher than necessary mortgage rate. Think of it as a commission paid to your mortgage broker for overcharging you.

Banks don’t use mortgage brokers to originate their home loans because they fund their loans with the banks money, cutting out the middleman so to speak. This is a good thing right? No mortgage broker, no Yield Spread Premium right? Not exactly. ..

Banks don’t offer wholesale mortgage rates to their customers, but they know what rates are available from wholesale lenders including what mortgage rate you could get from their competitors; however, the bank charges you mortgage rates based on what profit they want to make selling your loan on the secondary market. This markup of what you could have had and what you got creates Service Release Premium, or a premium profit for the bank.

The bank will never tell you what they’re doing with your mortgage rate because they’re not legally required to disclose any of this about your loan. Remember that loophole in the Real Estate Settlement Procedures Act? In a nutshell, this is why you should never refinance your home mortgage with your bank.

Mortgage Broker Banks

The successful lobbying of Congress to have banks excluded from RESPA legislation created a new kind of “direct lender.” Many mortgage brokers saw what the banks had accomplished for themselves and greedily decided they wanted in on the action. These brokers created a new kind of lender known as a “broker bank.” Instead of reselling loans from wholesale lenders these broker banks funded loans with their own cash and were therefore able to take advantage of the same loophole as your bank. You’ll see advertisements now and then for “direct lenders” that cut out the middleman when refinancing your mortgage.

Don’t be fooled by this bravado; the only reason for a mortgage broker to operate a business in this manner is to take advantage of their customers by exploiting this loophole in disclosure laws that are supposed to be protecting you from predatory lending practices.

How to Spot a Mortgage Broker Bank

How can you tell if the person you’re dealing with is operating as a broker bank? Ask them if they close in the name of their own company or the wholesale lender when refinancing your mortgage. If the answer is that they close in their own company’s name then you know that you’re dealing with a mortgage broker bank and would be better off finding someone else to refinance your home.

You can learn more about refinancing your mortgage with the right lender without paying this unnecessary markup of your mortgage rate or lender junk fees by registering for my Underground Mortgage Videos. Register today and you’ll be on your way to saving thousands of dollars on your next home mortgage loan.

Mortgage Refinance Information: Tips You Need to Know

If you are like most homeowners seeking mortgage refinance information online you’re already familiar with discount points and how they affect your mortgage rates.

What you may not know is that the mortgage industry has a little known dirty secret called Yield Spread Premium.

Simply put, Yield Spread Premium is the opposite of a discount point. Someone… just not you… is getting cash from the lender for marking up your mortgage interest rate. Here are the basics you need to know to avoid paying too much when refinancing your home mortgage loan.

Mortgage Refinancing & Yield Spread Premium

It sounds like a scary term but Yield Spread Premium is a relatively simple concept to wrap your head around. The majority of homeowners today have never heard of Yield Spread Premium nor do they know that this markup of their mortgage rate was quietly slipped into their existing home loan. According to the government Yield Spread Premium is responsible for American homeowners overpaying nearly sixteen billion dollars this year alone.

How Yield Spread Premium Works

Here’s an example: suppose you are refinancing your mortgage for $250,000 and your mortgage broker tells you that you qualify for a mortgage rate of 6.5 percent. What you don’t know is that you actually qualify for a mortgage rate of 6.0%. The “spread” is the difference between what you got and what you could have had…in this example .5%.

The premium created in this example is a 2% commission for the mortgage broker for lying to you. In this example the mortgage broker walked away with a $5,000 payday from the mortgage lender for overcharging you. This is in addition to any fees you paid to the broker for loan origination. 99.99% of homeowners have mortgage loans with higher than necessary mortgage rates. Most likely you’re already paying thousands of dollars too much for your existing mortgage loan.

Yield Spread Premium Can Be Avoided

You can refinance your existing home loan without this unnecessary markup of your mortgage rate. Homeowners who learn to recognize and avoid Yield Spread Premium are able to take advantage of the wholesale nature of mortgage rates and save thousands of dollars every year pay a mortgage. The free online videos available on this website will show you an easy-to-follow method of refinancing your mortgage without this markup of your interest rate and how to avoid lender junk fees.

Check out my Underground Mortgage Videos and you’ll also receive a list of mortgage brokers in your area that don’t mark up mortgage rates to get you on the right track to refinancing without paying too much for your next mortgage loan.