Origination Fee and Points

refinance rates online Origination Fee and Points
Many homeowners absolutely dread refinancing their mortgage loans because they don’t fully understand how the loan origination Fee and discount points work.

In fact, the loan origination fee and unnecessary discount points are one of the reasons homeowners in the United States will overpay well over sixteen billion dollars this year alone when refinancing their mortgage loans according to the HUD Secretary. Here are several tips to help you avoid being a part of this statistic when refinancing your home loan AND save you thousands of dollars in the process.

Your Loan Origination Fee Can Make or Break Your Deal

Let’s get started with the loan origination fee. Sometimes called “origination points” this a fee you will pay to the person arranging your new loan. This person could be a discount mortgage company or a broker. A reasonable amount to pay for loan origination is one percent of your loan amount; however, it is not uncommon for mortgage brokers to charge as much as five percent. If you follow the system outlined in the free underground mortgage videos on this website you can find a loan broker willing to work for one percent without padding your best mortgage rate for a commission…but more on that later.

What About Discount Points?

There is another flavor of mortgage points you need to be aware of and that is the so called “discount points.” This is a form of pre-paid interest paid by you at closing in exchange for the lowest mortgage rate. One “discount” point is the equivalent of one percent of your mortgage amount and should lower your mortgage rate by .25%. Some lenders will require you to pay points to get a specific low mortgage rate; however, in today’s market you can get rock bottom rates without paying discount points.

If you have less than desirable credit you might not be able to get around paying points…whether or not it makes sense to refinance in your case depends on how long it will take to recoup your points and closing costs from your savings on the new loan. You can easily calculate the break-even point when refinancing by determining how much lower your new monthly payment will be each month and dividing your total closing costs including points by the amount of your savings. This will tell you how many months it will take to recoup your expenses from refinancing; if you can live with the length of time it takes to get your money back then refinancing your home loan probably makes sense in your situation.

This is a much more intelligent method of determining if refinancing is a good idea in your situation than relying on that old wife’s tale known as the two percent rule. (The two percent rule states you should only refinance if the best mortgage rate is two percent lower than you existing rate. A real bonehead came up with this rule…you’d never want to be seen with him and he’d embarrass you at parties.) Getting back to points in most cases you will want to avoid paying discount points whenever possible because mortgage rates are so low right now.

What About Mortgage Broker Markup?

That’s the million dollar question…what about all these sneaky mortgage brokers that mark your interest rate up to get a commission from the lender? I’ll bet you didn’t know they did that? In fact, many brokers become defensive and angry if you ask them about this markup, insisting that the fee they receive from the lender is “none of your business…it’s between me and the lender.”

Well, I’m here to tell you that this “fee” known as Yield Spread Premium is your business and you should be very concerned as to why the lender pays the broker for marking up your mortgage rate. Mortgage lenders love loans that close with higher than market mortgage rates. Your online mortgage lender actually makes the majority of their profits selling loans to investors on the secondary mortgage market and home loans with higher than necessary mortgage rates make them the most profit. This is why mortgage lenders reward brokers that overcharge their customers with a commission known as Yield Spread Premium.

Most homeowners have never heard of this markup and don’t know how to spot it in their loan documents. You’ll probably never see it on your Good Faith Estimate because many brokers leave it off completely. The lender is required by law to disclose it in the HUD-1 statement; however, if you don’t know what you’re looking for at this point it’s probably too late and you’ve already paid too much.

Better luck next time around right? Well, fortunately for you, you’re probably not that far along in the closing process and have time to learn how to avoid this unnecessary markup of your discount mortgage rate that results in overpaying thousands of dollars every year that you keep the mortgage loan. Another little known fact when refinancing your home mortgage loan is that you actually have three days to change your mind and put the brakes on before your lender funds the loan. This is known as your three day rescission rights…you can bail on a shady lender at any time until your loan is funded three business days after closing.

How to Avoid Overpaying the Loan Origination Fee

You might be thinking to yourself I know how to avoid all this on line mortgage broker trickery… I’ll just refinance my home loan with my bank or credit union. Guess again, banks have their own tricks due to a little known loophole in the Real Estate Settlement Procedures Act. Refinance your home loan with a bank and I guarantee you’ll pay more than you have to AND will never know how the bank overcharged you. The best deals when refinancing your mortgage without overpaying come from finding the right mortgage broker for the job.

Your Mortgage broker works for a commission, you’ll never get around this and they do have kids to feed like everyone else; however, they should not be taking advantage of people just to make a hummer payment. There are honest mortgage brokers out there who are willing to work for a one percent loan origination fee without taking Yield Spread Premium on the loan; you just need to know how to find them.

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Check out my free Underground Mortgage Refinancing Videos and you’ll discover how easy it is to save thousands of dollars getting the best refinance rates without paying unnecessary markup or lender junk fees.

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Here’s a sample to get you started paying less for the loan origination fee from today’s best mortgage lenders

How to Read Your HUD-1 Settlement Statement

If you’re in the process of closing on a new mortgage loan to purchase your home or refinance an existing mortgage, you might find the paperwork provided confusing and misleading. You may have already received a copy of the Good Faith Estimate from your discount mortgage broker and are finding that the actual closing costs and fees are nowhere near what you were promised.

How can you make sense of the actual charges associated with your new mortgage before closing and is too late to bail if the loan is not what you wanted?

Using the HUD-1 statement to reconcile what your mortgage loan broker promised on your Good Faith Estimate will give you an accurate picture of your loans actual fees and closing costs. Here are tips to help you make sense of this important mortgage document.

The Good Faith Estimate Is Not Reliable

Your Good Faith Estimate is just an estimate. The law requires that your get this document after submitting your application; however, it does not require that it accurately reflect the fees associated with any mortgage offer. After all the Good Faith Estimate is only an estimate and mortgage brokers frequently low ball closing costs and leave their markup of your lowest mortgage rate off this document completely.

If your Good Faith Estimate is all but worthless, how can you effectively comparison shop? Should you rely on the Annual Percentage Rate (APR) like your bank would have you do when taking out a mortgage? The Good Faith Estimate may be bad for comparing mortgage loan offers online but the Annual Percentage Rate is worse. When it comes to comparing closing costs using Good Faith Estimates from several different mortgage companies and brokers will give you a good idea of the average costs for the area you live; however, it won’t give you an accurate picture of your mortgage broker fees. Because many of the closing costs you encounter come from third party companies any broker that lists these charges much lower than the others can be easily identified as low-balling.

Despite its shortcomings the Good Faith Estimate is still the best way to compare loan offers to find the best mortgage deals, provided you reconcile with the HUD-1 statement before closing. What should you look for on your Good Faith Estimate/HUD-1 before signing the loan contract? You already know that comparing estimates from several different brokers and discount mortgage companies will give you a good idea of what average closings costs are where you live, but what about broker markup and garbage fees? There are a number of charges invented by your mortgage company or discount broker that you need to be on the lookout for.

Mortgage Garbage Fees

Garbage fees come mostly from your mortgage company or broker. If you find anything on your Good Faith Estimate that resembles an application fee, processing fee, broker courier fee, rate lock fee, or broker rebate you’re looking at thousands of dollars in unnecessary junk fees. Here’s a rundown of these mortgage junk fees:

Rate Lock Fee This is a fee charged for supposedly “locking in your mortgage rate.” First of all, lenders do not charge a fee for locking. Period. If you find this fee listed on your Good Faith Estimate or HUD-1 Statement it has been completely fabricated by your mortgage broker and is destined for their pocket. Never agree to pay a fee for locking in your mortgage rate.

Loan Processing Fee Some mortgage brokers claim that they use “professional loan processors” to prepare your mortgage application before sending it to the underwriter at the lender, charging as much as $500 for this “service.” What does loan processing entail? Making copies, collecting signatures and Fedexing documents to the underwriter at the mortgage lender is not worth $500 of your money…don’t fall for this one.

Application Fee Another useless junk fee. You might have to pay for credit reports; however, don’t pay for an application fee on top of paying for your credit history. This is just nickel and diming your money away.

Broker Courier Fee This is another made up fee that will be going directly into your mortgage broker’s pocket.

Broker Rebate This is a big one. If you’re not already familiar with the broker rebate or Yield Spread Premium you will need to carefully read the next section of this article. Neglect this area of the best mortgage and you will overpay thousands of dollars in unnecessary finance charges for the entire duration of your loan.

So What is Yield Spread Premium?

Yield Spread Premium or YSP for short is the “rebate” your mortgage broker receives from the wholesale lender for charging you an above market mortgage rate. This markup of the wholesale mortgage rate that your lender approved you is what makes mortgage interest rates retail by nature. Online Mortgage lenders encourage this overcharging with the discount broker rebate because they make the majority of their profits selling loans with above market rates to investors on the secondary market. The problem with this “broker’s rebate” is that it is rarely disclosed and could raise your lowest mortgage payment by hundreds of dollars every month. Question the average mortgage broker about Yield Spread Premium and you’ll have a defensive and often angry person on your hands.

And why not? Yield Spread Premium doubles, often triples the compensation they receive from your loan. Is the broker rebate dishonest? Because the average mortgage broker website tries to explain away Yield Spread Premium or tells you not to worry about the broker rebate because it’s not being paid out of your pocket it IS dishonest.

How Can You Tell If Your Mortgage Has YSP?

Finding Yield Spread Premium in your loan documents can be difficult. The first opportunity you’ll have during the mortgage process to spot the infamous broker rebate is on your wholesale lender’s rate lock confirmation. Once you’ve agreed to lock in your mortgage rate if you’re dealing with an honest mortgage broker you will receive written confirmation FROM THE LENDER. Shady mortgage brokers will try and pass off written confirmation typed up on their own letterhead. If you get rate lock confirmation like this from your mortgage company or broker, you have not locked in your mortgage rate. Unless you have written confirmation FROM THE LENDER you could be a victim of a bait-and-switch scam when the loan you were promised falls through because your mortgage broker did not properly lock in your mortgage rate.

Once you have written confirmation of your rate lock from the lender any Yield Spread Premium will be clearly indicated on this document. If you’ve already locked in your rate and either didn’t get written confirmation or got it from your mortgage broker the next opportunity you’ll have to discover the broker rebate or Yield Spread Premium is on your HUD-1 Settlement Statement. You should always request this document prior to closing and should be provided a copy 24 hours before closing on your new mortgage.

Once you have the HUD-1 statement from your lender you’ll find that it closely resembles the Good Faith Estimate you received. If Yield Spread Premium you will find it around lines 810 or 811. If these lines are blank you’ll have no broker rebate…that’s exactly what you want to find on the HUD-1 statement. If you find a “Broker Rebate” with a number next to it you’ve got Yield Spread Premium, and yes that large number is in dollars. This is your mortgage broker’s cash compensation for overcharging you. In most cases this is being paid in addition to the origination fee you’re already paying for the broker’s services (and are probably overpaying).

If you don’t find the broker rebate on your HUD-1 statement be sure to look for any other fees payable to the mortgage broker like processing or broker courier fees. The broker rebate or Yield Spread Premium is frequently referred to as POC charges, meaning Paid Outside of Closing. This is simply legal speak for Yield Spread Premium…don’t be fooled.

Don’t Get Ripped Off

Most homeowners get ripped off on their first few mortgages because they just don’t know better. You can prevent your mortgage broker and lender from ripping you off and save thousands of dollars per year on your next mortgage by doing your homework and learning how to negotiate for wholesale mortgage rates.

Click for Instant Online Access

Check out my free Underground Mortgage Refinancing Videos and you’ll discover how easy it is to save thousands of dollars getting the best refinance rates without paying unnecessary markup or lender junk fees.

  • Free Underground Mortgage Videos

Here’s a sample to get you quickly on the path to mortgage bliss.

Yield Spread Premium for Dummies

Many homeowners have never heard of Yield Spread Premium and do not understand why their mortgage rate is marked up. Yield Spread Premium sounds complicated; however, once you understand why it’s there, you can avoid paying this unnecessary markup. Cutting the fat from your mortgage rate by as little as a quarter point can lower your monthly payment by hundreds of dollars in many cases. Here are the basics you need to understand about Yield Spread Premium and mortgage interest rates.

Why Yield Spread Premium?

From the lender’s point of view this markup is all about return on investment. Wholesale lenders make the majority of their profits selling mortgage loans to investors on the secondary market. Mortgages with above market interest rates bring these lenders premium profits; this is why lenders incentivize overcharging homeowners with retail mortgage rates.

There’s a lot that goes on behind the scenes when your mortgage broker quotes you an interest rate. Once your broker understands your financial situation they’re sizing you up much like a used car salesman does when you walk onto the lot. Your mortgage broker knows the wholesale mortgage rate you qualify from the wholesale lender; however, the broker wants to up sell you on a higher mortgage rate because of this incentive from the wholesale lender. Here’s an example to illustrate how Yield Spread Premium works.

Suppose you are refinancing your 1st and 2nd mortgage loan for a total of $250,000. You wanted to consolidate these two mortgages with a lower interest rate and one payment. The broker tells you that you qualify for a 6.75% fixed rate loan and charges you 1.5 points for the origination fee. One point in this example is $2,500 as a point equals one percent of your loan amount. What your mortgage broker isn’t telling you is that you actually qualified for a 6.0% mortgage rate and they’ve marked it up for a commission from the lender.

In this example the mortgage broker receives $3,750 from you in origination fees. This is compensation for their work in arranging your mortgage; however, a reasonable amount to pay is no more than one percent. In this example 1.5 percent is too much. In addition to overcharging you for origination fees, the mortgage broker receives a commission from the lender for inflating your interest rate. In this example the broker pockets an additional 3.0%, or $7,500 for overcharging you. This fee is Yield Spread Premium. The broker walks away with $11,250 at your expense for little more than a few hours work.

Yield Spread Premium is Dishonest

The overwhelming majority of mortgage brokers will never admit what they’re doing with your mortgage rate. Those that do often become defensive and even angry about any questioning regarding this fee; they will tell you “since the fee isn’t coming out of your pocket don’t worry about it.” The fact of the matter is this fee is advantageous and dishonest. A bill is currently making its way through the House of Representatives making Yield Spread Premium illegal. If this happens how will your mortgage broker afford their boat payments? Too bad for them.

Until Yield Spread Premium is illegal, savvy homeowners who learn to recognize this unnecessary markup can avoid paying it when refinancing. By avoiding Yield Spread Premium you’ll be able to refinance with wholesale mortgage rates, potentially lowering your monthly payment amount by hundreds of dollars. Refinancing with a wholesale mortgage rate isn’t as difficult as you think. You’ll need to find a mortgage broker willing to work for the origination fee alone, without receiving the kickback from the wholesale lender. Honest mortgage brokers do exist; however they can be difficult to find.

How to Find an Honest Mortgage Broker

Your best bet in finding an honest person to originate your mortgage is to look for a local, self-employed broker. A representative a large brokerage house may not have the authority to refinance your mortgage without Yield Spread Premium; in this case mom and pop shops can be the best way to go. Start by contacting local mortgage brokers in your phone book and telling them that you are looking for a mortgage without Yield Spread Premium. Explain that you understand how the markup works and are willing to pay a reasonable origination fee for their work; however, you will not accept a higher mortgage rate for any lender paid compensation. Once you find a mortgage broker willing to work for an origination fee alone you are well on your way to saving thousands of dollars on your next mortgage.

Wholesale Mortgage Lenders

If you are in the market for a new mortgage either to purchase your home or refinance an existing loan, you might wonder if a wholesale lender could save you money. Most homeowners in the United States do not understand how the mortgage markets work and are unable to take advantage of wholesale rates even if they contact a wholesale lender directly. Homeowners who learn how the system works are able to take advantage of the wholesale nature of the market and save thousands of dollars. Here are the basics you need to know in order to take advantage of wholesale mortgage rates with your home loan.

Mortgage Market Basics

There are two markets in the United States for mortgage loans. The primary mortgage market is where consumers like you and I take out loans to purchase homes. The secondary market is where institutions and other investors buy and sell mortgage debt for a profit. The primary market is made up of several types of mortgage lenders, most of which make the majority of their profits by selling mortgage debt on the secondary market.

Types of Mortgage Lenders

The basic types of mortgage lenders you will encounter in the primary market include wholesale lenders, banks and credit unions and ”broker-banks” known as correspondent lenders. I don’t recommend taking out a mortgage from your bank, credit union, or a broker-bank such as E-Loan because these lenders are exempt from the Real Estate Settlement Procedures Act thanks to a loophole courtesy of the Banking Lobby. Because these lenders are not legally required to play by the same rules as other mortgage lenders you’ll never know how much they’ve marked up your mortgage interest rate. Besides, why would you want to do business with a lender that isn’t required to play by the rules?

refinancing mortgage rate Wholesale Mortgage LendersThis article is about wholesale mortgage lenders, which now that we’ve eliminated banks and broker-banks are all we’re left with. What are wholesale lenders? Wholesale lenders are institutions that sell loans on the secondary market for a profit. As members of the public, you and I cannot deal with a wholesale lender directly. Even if you were to contact one of these lenders you’ll be dealing with a retail division of that lender and you will not get a wholesale rate. How can you get a wholesale mortgage rate? Glad you asked…

Mortgage Brokers Have Access to Wholesale Rates

If you want to take advantage of wholesale mortgage rates you’ll need to enlist the help of a mortgage broker…and not just any broker, you need to find one willing to work for an origination fee without charging you Yield Spread Premium. Finding a mortgage broker like this is not an easy task. Yield Spread Premium frequently doubles often triples the compensation mortgage brokers receive on your loan.

What is Yield Spread Premium?

Yield Spread Premium is simply the difference between the wholesale rate the lender approves you and the rate your mortgage broker “sells” you. This markup of your mortgage rate is what makes your loan “retail.” Mortgage brokers do this because the wholesale lender pays them a bonus for closing mortgage loans with above market interest rates. In fact your mortgage broker receives a commission of one percent of your mortgage amount for every .25% they con you into overpaying. I use the word “con” because most brokers conveniently omit this markup from your Good Faith Estimate and have ways of cleverly disguising it on the HUD-1 statement.

Many mortgage brokers get defensive, even angry when questioned about Yield Spread Premium. They’ll tell you that because this fee isn’t coming out of your pocket that you shouldn’t worry about it. What you should be concerned about is the reason that this fee is being paid…your broker gets this commission because you’re agreeing to pay an above market mortgage rate.

This is why finding the right mortgage broker is critical for getting a wholesale mortgage rate. You’ll need to negotiate with potential brokers to pay a reasonable origination fee (not more than one percent) without paying Yield Spread Premium. Start by telling your mortgage broker that you understand how Yield Spread Premium works and will not accept this markup on your loan.

If you’d like to receive more advice about wholesale mortgage lenders and taking out a mortgage without paying too much check out my free Underground Mortgage Videos.

Three Day Rescission When Refinancing Your Mortgage

lowest refinance rates Three Day Rescission When Refinancing Your MortgageMost homeowners have heard about rescission but do not understand how it works. The three day rescission allows you time to review all of your documents after closing to make sure the loan you got is the mortgage you were promised.

You have until midnight on the third day to cancel your loan for any reason. This serves to protect homeowners from the pressure sales and bait and switch tactics commonly used by mortgage lenders.

Your mortgage broker is supposed to inform you of your rescission rights; however, most brokers conveniently forget to disclose this to you when refinancing your mortgage. If you decide to take advantage of rescission you will need to fax the written cancellations to your mortgage broker, lender, and Title Company involved with your loan. The three days time frame you have for rescission include any business day, Monday thru Friday and Saturday, excluding Sunday and Federal holidays.

Suppose for example you close your loan on Tuesday. Your three day rescission period will be Wednesday, Thursday, and end Friday evening at midnight. Remember that weekends do not count, if you close on a Friday for instance your rescission period is Monday, Tuesday and Wednesday with the loan funding on Thursday. Holidays including Labor Day, Columbus Day, Veteran’s Day, President’s Day, Independence Day, Martin Luther King’s birthday, Thanksgiving, Christmas, and New Years do not count against your rescission period.

UPDATE: Good Friday is not one of the excluded holidays and does count against your rescission period.

Knowing your rights as a homeowner is an important part of protecting yourself from abusive lending practices. Mortgage loans are a huge liability and should be treated with care. Don’t ever let a pushy mortgage broker put you in a loan you do not want or fully understand. You have the right do cancel any mortgage during the three day rescission period; just make sure you provide written notification to all parties concerned before the deadline expires. If you elect to cancel your loan I would recommend following up with a telephone call after you provide written notification to the broker, lender, and Title Company.

Click for Instant Online Access

Check out my free Underground Mortgage Refinancing Videos and you’ll discover how easy it is to save thousands of dollars getting the best refinance rates without paying unnecessary markup or lender junk fees.

  • Free Underground Mortgage Videos

Here’s a sample to get you quickly on the path to mortgage bliss.