Lower Mortgage Rates

mortgage broker Lower Mortgage RatesIf you’re in the market for a new mortgage and are searching for lower mortgage rates, there are several things you need to know about the rate quotes you receive. Many homeowners think that comparing offers from several different lenders is all they need to get the best deal; however, what most people don’t understand is that they are simply comparing retail mortgage rates with the same markup. If you really want lower mortgage rates you’ll need to find someone willing to offer you wholesale rates without paying garbage fees. Here are several tips to help you refinance your mortgage with a wholesale mortgage rate and save thousands of dollars in the process.

What Are Wholesale Mortgage Rates?

Wholesale mortgage rates are offered by a certain type of mortgage lender that does not do business with the public directly. These wholesale mortgage lenders offer their best rates to mortgage brokers and other retail mortgage companies that sell loans to the public for a commission. Many people think that by contacting one of these lenders directly they can refinance with a wholesale rate; however, wholesale lenders have retail branches that deal with the public and do not offer wholesale mortgage rates. In order to refinance your loan with a wholesale rate you’ll need to enlist the help of an honest mortgage broker willing to give you access to these rates.

Mortgage Brokers Work For a Commission

The problem with refinancing your home loan with a mortgage broker comes from the way that brokers are compensated. Mortgage brokers are paid for their services in two ways. Most brokers charge you an origination fee for their services. This fee could be one percent or more of your loan amount; however, one percent is a reasonable amount to pay for your mortgage broker’s services. The second method your broker receives compensation is from kickbacks the lender pays for overcharging you with your mortgage interest rate. Many brokers mark up the mortgage rate you qualified because lenders pay a commission of one percent for every .25% they overcharge you. This commission is called Yield Spread Premium and is the reason that most homeowners overpay when refinancing their mortgage loans.

Yield Spread Premium Can Be Avoided When Refinancing

Most brokers get defensive or even angry when questioned about Yield Spread Premium. And why wouldn’t they? This markup of your mortgage interest rate can double, even triple their commission on your loan. You can avoid paying a higher mortgage rate with Yield Spread Premium by finding a mortgage broker willing to work for the origination fee alone, without this kickback from the mortgage lender.

Shop Around For Honest Mortgage Brokers

You can start your search for an honest broker to refinance your mortgage by searching the Internet for an “Upfront Mortgage Broker” in your state. Upfront mortgage brokers charge a flat fee for loan origination without charging Yield Spread Premium on your loan. The Upfront Mortgage Broker’s Association maintains a registry of brokers on their website upfrontmortgagebrokers.org that is categorized by State.

If there are no members in your State you can find the right broker by contacting mortgage brokers found in the phone book. Start by telling these brokers that you understand Yield Spread Premium and will not accept any loan offers that include this markup.

It is usually easier to negotiate this type of deal with a mortgage broker that has their own business as those working for a large brokerage firm may not have the authority to give you the deal you are looking for. You can learn more about finding the right kind of mortgage broker to refinance your home loan without paying Yield Spread Premium and other garbage fees by requesting a free mortgage refinancing DVD.

How Not to Refinance Your Mortgage

Here’s an example of how not to refinance your mortgage; a typical refinancing transaction gone wrong. Our homeowner in this is example is called Jackie. Jackie purchased her home in Germantown Maryland, and owes $330,000 on an existing thirty year mortgage at 9% interest. Jackie decides she’d like to refinance her fixed rate mortgage and take cash back to pay off the bills she racked up during her family’s summer vacation.

How does Jackie go about refinancing her mortgage? She calls a mortgage broker recommended by one of her girlfriends. We’ll call the mortgage broker Terry. Jackie’s friend has never used this broker, she only knew him as a casual acquaintance. Jackie calls up Terry who immediately goes into his sales mode pitching Jackie with a hybrid Adjustable Rate Mortgage. On the surface it’s an attractive offer: Terry tells Jackie that she qualifies for a 7.75 percent interest rate that’s fixed for 5 years. He’s only charging her 1.5 points for the origination fee and she’ll get $25,000 back at closing.

Jackie thinks she got a fantastic deal and thanks her friend for referring her to Terry. Think Jackie got a good deal refinancing her mortgage? Well, since the title of this article is how not to refinance your mortgage, you’re probably thinking Jackie got taken to the cleaners, and you’re right. Here’s where Jackie went wrong with her new mortgage loan.

The first thing wrong with this transaction is that Jackie jumped at the first favorable offer she received. Jackie never questioned the figures Terry presented her and never noticed the prepayment penalty he slipped in the contract. Jackie never knew the 1.5 points she paid for the origination fee was highway robbery; considering Terry helped himself to an additional $10,650 commission at her expense. Because of the prepayment penalty Jackie is stuck with an above market interest rate on a bad mortgage and doesn’t even know it. How can you avoid Jackie’s mistakes? Read on…

The first thing you need to know in order to avoid a loan like Jackie’s is how mortgage brokers are compensated for their work. Your mortgage broker is paid in two ways. First, the broker receives the origination fee you pay for arranging the loan. In this example the broker charged Jackie 1.5 points, or 1.5% of the loan amount, for the origination fee. Remember that a point is the equivalent of one percent of your loan amount due at closing. A reasonable amount to pay for loan origination is 1 point, or one percent. This is the first area Jackie overpaid for her new mortgage.

The second way mortgage brokers are compensated for arranging your loan is the so called “Lender Paid” compensation. This is a fee paid by the lender as commission for the loan. Most homeowners think since the lender’s paying the fee and it’s not coming out of my pocket, why should I care how much the broker gets from the mortgage lender, right? Wrong! Consider why the lender pays your broker this fee…it is in fact an incentive for overcharging you on your mortgage interest rate.

That’s right, your mortgage broker knows the wholesale interest rate that your lender approved you but keeps this information from you. The broker marks up your mortgage rate much like a car dealer selling used cars to people that don’t understand blue book values. The less you know, the more you’ll pay. The wholesale lender rewards your mortgage broker with a bonus of one percent of your loan amount for every quarter percent you agree to overpay. In Jackie’s example the lender approved her for a mortgage rate of 7.0%; her broker marked it up for the additional commission from the lender. This unnecessary markup of your mortgage interest rate has a name; it’s called Yield Spread Premium. According to the Secretary of Housing and Urban Development, Yield Spread Premium costs homeowners in the United States nearly six billion dollars every year. That’s right, six billion dollars.

Jackie’s mortgage broker collected 3.0% of her loan amount, plus the 1.5% he overcharged her for the origination fee. For a couple hours work the broker walked away with $15,975 at Jackie’s expense. Ever wondered how your mortgage broker makes his Hummer payment? Now you know.

Let’s recap: Jackie’s first mistake was neglecting to shop around and compare fees from a variety of brokers and lenders. If she had done this she would have seen that 1.5% for the origination was too high. Her second mistake was neglecting to do her homework. If Jackie had invested the time she could have learned about Yield Spread Premium and refinanced with a wholesale mortgage rate. Finally, Jackie’s stuck with a hefty prepayment penalty. The next time she decides to refinance her mortgage she’ll be facing a large fee to get out of her existing loan. If Jackie had carefully read the paperwork and questioned her broker about this prepayment penalty and the markup of her interest rate she wouldn’t have the lousy mortgage she’s now stuck with.

Fortunately for you, doing your homework is easier than you think. By learning to recognize the unnecessary markup of your mortgage interest rate you can negotiate for wholesale mortgage rates when comparison shopping for a new mortgage. When you’ve done your homework you can avoid the unnecessary junk fees Jackie paid when closing on her new mortgage loan; application fees, lock fees, broker courier fees…these are all garbage fees that you’ll be able to avoid when refinancing.

How can you learn all of these money saving secrets Jackie doesn’t know when refinancing your mortgage loan? Register for my free mortgage toolkit and you’ll learn just that. The free videos will not only teach you how to refinance your mortgage with a wholesale mortgage rate but will show you how to avoid paying garbage fees every step of the way. Register today…it’s free and you’ll find links for signing up at the top and bottom of this page.