Smarter Home Loan Interest Rate Comparison Shopping

Comparing mortgage rates is easier today thanks to the standardized Good Faith Estimate courtesy of the Department of Housing and Urban Development. The new Good Faith Estimate outlines your closing costs simply making it easier to shop from today’s best mortgage lenders. Here’s how to use the new disclosure form to make the best home loan interest rate comparison.

Get a Better Home Loan Interest Rate Comparison

Finding the best mortgage rates with the lowest out-of-pocket fees can be confusing. Do you know the difference between processing fees and document fees? Do you know how Yield Spread Premium (yes it still exists) affects your loan origination fee?

The most common mortgage mistake your neighbors make with their home loan interest rate comparison is looking at rates and fees across different programs. The first thing you should do when shopping for a home loan is understand and choose a program. Once you’ve decide which program is best for you stick with it and don’t let a fast talking loan officer talk you into changing.

Understanding Your Good Faith Estimate

The problem in the past was that lenders cooked up different names for their fees to make home loan interest rate comparison shopping confusing. One would call it a processing fee the other an application fee. The new Good Faith Estimate standardizes lender fees and terms.

Your mortgage loan program and any “gotcha” fees like the prepayment penalty are clearly disclosed.

According to the government the new Good Faith Estimate saves you $700 just by eliminating the shady names lenders used to confuse homeowners.

Here are 4 steps to follow for the best home loan interest rate comparison shopping:

  1. Shop Smartly For Interest Rates & Fees

  2. It’s impossible to make an apples-to-apples comparison of interest rates and fees on your Good Faith Estimate if you’re comparing home loans across different programs. Once you’ve decided that a conventional 30-year fixed rate mortgage is right for you don’t let a shady loan officer confuse you by quoting rates and fees from a 7/1 ARM. If you confuse the issue by comparing across different programs you’ll overpay at closing every time.

  3. Shop With Accurate Mortgage Rate Quotes

  4. Many homeowners refuse to give their social security number when shopping because they’re afraid the quote will damage their credit. While it’s true that your credit score will take a hit by having a mortgage lender run your credit you can manage the impact by limiting inquires to a two week period.

    If you do this you’ll only get dinged once. Also, when requesting mortgage quotes during this two week period always provide your social security number to ensure you’re getting an accurate quote. If you don’t provide your SSN the best you can hope for is that lender’s advertised rate or worse yet someone’s guess.

  5. Use Your GFE’s Shopping Chart

  6. Page three of your Good Faith Estimate has a chart you can fill out to make a home loan interest rate comparison across different lenders. Once you fill out the chart at the bottom of page three you can compare loan characteristics and fees from up to four lenders. Be careful when using the shopping chart as some of the questions might tempt you to compare home loans across different programs which is a mistake.

  7. Avoid Focusing Only On Mortgage Rates

  8. Many homeowners get so caught up on chasing the lowest mortgage rates that they overlook fees. The fees you pay at closing make or break the deal you’re getting. If you focus only on mortgage rates at the expense of discount points and the loan origination fee you’re guaranteed to lose money.

    The fees you need to focus on are found on page two of your Good Faith Estimate. The loan origination fee and any Yield Spread Premium are found in section A box 1 and 2. Did someone mistakenly tell you Yield Spread Premium is illegal now? Look at box 2: “The credit or charge for the interest rate of X% is included in our origination charge. (See item 1 above.)”

    This is Yield Spread Premium and it’s perfectly legal. If you’re getting a credit towards your loan origination fee you might think that it’s less cash coming out of your pocket; however, you’re accepting a higher mortgage rate for the credit which means a higher payment.

    The loan origination fee in box 1 is important and can save you a significant amount at closing. Many brokers will tell you that one percent is standard but I’ve reviewed community credit unions that charge as little as $400 for loan origination. The less you pay the better the deal you’re getting on your next home loan.

Shopping smartly is the best strategy and using the new Good Faith Estimate’s home loan interest rate comparison table to compare fees can save you thousands of dollars at closing.

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

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Here’s a quick sample to help you find the best mortgage rates with the lowest fees…

Should You Refinance Again in 2013?

You refinanced your mortgage a couple years ago when refinance rates were rock bottom…or so you thought. Since then refinance rates have fallen even lower and you’re thinking should I refinance again? There is a downside to serial refinancing that can wind up costing you a lot of money; however, in some situations it makes sense to refinance that mortgage again. Here are the pros and cons of refinancing to help you make an informed decision and avoid losing money.

Serial Mortgage Refinancing Can Bite You

Refinance rates averaged 5.5 percent in 2009 at the height of the refinancing boom. Many people, including most financial analysts predicted we had reached the bottom and rates would correct higher to just above six percent.

Instead refinance rates continued to fall and set new records for historic lows. If you took advantage of refinance rates during the past few years you might be surprised to find that some programs have dipped below three percent.

When Is Refinancing a Bad Idea?

One of the problems with refinancing your mortgage aside from the fees you pay is that you reset the clock on your home loan’s amortization. If you’re ten years into a thirty year mortgage and you refinance with a 30-year mortgage, you’re right back where you started with your amortization schedule.

Another problem with resetting the clock on your home is that your payments are front-loaded with interest. In the early years of your amortization schedule the majority of your payment goes to pay interest. Over time this changes and you begin building more equity in your home, stuffing less of your cash in the lender’s pockets.

In a down market this lack of equity building could result in being underwater, meaning you owe the lender more than your home is worth.

You might think that getting low refinance rates is the most important aspect of refinancing. It’s true that refinance rates along with the term length you choose determines your payment amount; however, the test of how good of a deal you’re getting comes from the fees you pay.

The more you pay closing on your new home loan the less benefit you’re getting from today’s best refinance rates. If you’re still recouping your out-of-pocket expenses from the last time you refinanced two years ago it’s going to take you that much longer to break even on the new mortgage.

Paying too much for things like the loan origination fee or discount points means it’s going to take longer before you realize any benefit from refinancing.

Tax Consequences of Mortgage Refinancing

Politicians love to scare people to further their agendas. That’s what all the talk about the fiscal cliff is about including axing the mortgage interest tax deduction. Many homeowners paying six percent or more have enjoyed a large deduction from their tax returns every year.

What do you think refinancing at three percent is going to do to that deduction? That’s another downside of record low refinance rates. Millions of homeowners are going to find their mortgage interest tax deduction shrink dramatically as a result of refinancing.

This is happening despite fear of falling off the fiscal cliff. It’s actually more of a fiscal slope and not a cliff but where’s the fun in falling down a hill?

Should You Refinance Your Mortgage Again?

You can calculate how long it’s going to take to break even recouping your out-of-pocket expenses to decide if getting lower refinance rates makes sense. This calculation is really just an approximation because factors like term length affect your ability to recoup closing costs. If you choose a longer term length than what you have on your existing mortgage you’ll never break even thanks to the additional years you’re financing.

To approximate your break-even point, add up all of your closing costs and divide by the amount your payment is going down by refinancing. Suppose for example refinancing is going to cost you $5,000 and lower your payment by $200. Divide your closing costs of $5,000 by the $200 you’re saving to get 25 month recovery for breaking even. This is in addition to the time left recouping fess from your first refinance if you took out the mortgage within the last year or two.

Minimize The Downside With a Shorter Term Length

If you’re paying on a 30-year mortgage you can reduce the negative impact of refinancing by choosing a 15-year term-length. It’s true that your payment might not go down with a 15-year mortgage but you’ll offset this with much higher principal reduction. Considering that 15-year refinance rates are typically a half point lower than their 30-year counterparts it’s an easy choice for the fiscally conservative.

You can also maximize the benefit you’re getting from today’s best refinance rates by minimizing what you’re paying at closing. Many of the fees you find in section 800 of your Good Faith Estimate Can be negotiated to pay less or not at all.

The loan origination fee is one of the most commonly overpaid fees found on your Good Faith Estimate. One percent is considered standard; however, I’ve reviewed community based credit unions that charge as little as $400 for their origination fee.

Invest some time comparison shopping refinance rates and fees across identical programs from different lenders and you can save yourself thousands of dollars at closing.

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You can learn more about getting the best deal on your next home loan without paying unnecessary lender fees by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started shopping for lower refinance rates without paying lender junk fees…

How to Beat Your Bank Getting The Best Refinance Rates

No one likes paying too much for anything and mortgage refinancing is no exception. One of the most common mortgage mistakes made by nearly all of your neighbors is focusing only on getting the best refinance rates. This strategy almost always results in paying too much at closing making it difficult, even impossible to recoup your closing costs. Here’s a proven strategy for getting the lowest refinance rates without paying unnecessary fees or discount points.

How Banks Make Money From Mortgage Refinancing

Did you know many banks and lenders have nothing to do with you once your mortgage closes? You would think banks make money by collecting interest from your payments but really this isn’t the case. Most lenders don’t service their own home loans and simply sell them to investors after closing for an upfront profit.

So how does your bank make money from refinancing your home? The fees you pay closing on your new home loan including unnecessary discount points are pure profit for mortgage lenders. In fact, the more you pay at closing the less benefit you’re getting from the best refinance rates.

Discount Points Benefit Your Banker…Not You

If you spend any amount of time shopping for refinance rates you’ll find lenders quote interest rates with varying amounts of discount points. This is a fee you pay at closing to buy down your refinance rates. Points raise your out-of-pocket expenses meaning it’s going to take you longer to break even recouping your closing costs. Pay too much and you could find that you never break even.

Discount points are a relic of the 1980s when double-digit interest rates made paying the fee worthwhile. Paying one percent of your loan amount would buy down your refinance rates by .25% which you could quickly recoup because interest rates were so high.

Today refinance rates are near historically low levels so paying that one percent fee only benefits your banker. Why do lenders quote refinance rates that include discount points? They’re banking on the fact that your neighbors don’t know better and will pay this unnecessary fee.

Make sure your refinance rate shopping is based on zero point quotes if you want the best deal for your next home loan.

What About No Fee Mortgage Refinancing?

You’ve seen the ads on television to get your home refinanced without paying anything out-of-pocket. Are these offers too good to be true?

The problem with no fee refinancing isn’t what you’re paying at closing but what you’re giving up in exchange. Lenders mark up their refinance rates to cover the loan origination fee and other closing costs.

There’s no such thing as a no-fee mortgage loan; these no fee refinance offers trade higher interest rates for fees which gets you a larger monthly payment.

How to Shop for the Best Refinance Rates

I’ve already mentioned that zero point offers are necessary when shopping for the best refinance rates…but don’t stop there. You want to compare offers from multiple lenders paying attention to the fees found in section 800 of the Good Faith Estimate. Don’t rely on the Annual Percentage Rate to factor in fees when comparison shopping.

Annual Percentage Rate or APR is the most manipulated marketing propaganda you’ll find when shopping for a home loan. More often than not the mortgage with the lowest APR has the highest closing costs. Never choose refinance rates based on the mortgage with the lowest APR.

Mortgage junk fees include the application fee, rate lock fee and processing fees. Your loan origination fee can be negotiated…the less you pay the better.

Don’t be afraid to question the fees found on your Good Faith Estimate. If you don’t like the answers you’re getting or a dealing with a pushy loan officer simply take your business elsewhere.

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You can learn more about getting the best deal on your next home loan without paying unnecessary fees by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing with today’s best mortgage lenders for less…

A Practical Guide To Negotiating For The Lowest Refinance Rates & Fees

Everyone knows that shopping for the lowest refinance rates will get you a better deal. What most people don’t know is that you can negotiate the terms of your new home loan when refinancing. In fact, negotiating fees and terms while shopping for the lowest refinance rates will get you the best deal if you go about it properly.

Here are several tips for getting the lowest refinance rates without paying unnecessary fees at closing.

Refinance Rates Can Be Deceiving

There are fees you can negotiate when refinancing that directly impact your bottom line (think payment amount). The two most commonly overpaid refinancing costs include the loan origination fee and discount points. Mortgage brokers and loan officers generally work for a commission. They receive part or all of the loan origination fee which could be split with a bank or lender. The more you pay for the loan origination fee the less benefit you’re getting from finding the lowest refinance rates because you’ll spend more time recouping your higher out-of-pocket expenses.

Discount points directly affect the refinance rates you’re getting as a way of buying down your interest rate. Most banks and lenders quote rates that include discount points meaning you have to pay the fee in order to get that particular interest rate. One full discount point is one percent of your loan amount; however, it’s common to find refinance rates quoted with varying fractions of a point.

Refinance rate shopping only makes sense if you’re making an apples-to-apples comparison of offers across lenders and it’s extremely difficult to do this with points in the mix. Should you agree to pay discount points? Refinance rates are still near the lowest levels in history so there is very little gained from paying points for anyone but your lender.

Always start your negotiation for the lowest refinance rates and fees with a zero point quote across several different banks and lenders.

Mortgage Refinance Rates Can Be Negotiated

The interest rate you get can also be negotiated especially when working with a mortgage broker. Your broker works from daily rate sheets from a variety of lenders and has a degree of freedom when quoting refinance rates just like the sticker price on your car. It’s worth mentioning that not all loan officers have the freedom to make concessions on refinance rates. This is why I recommend you start shopping with small community-based credit unions and independent mortgage brokers.

Closing Costs & Third-Party Fees

You will encounter fees refinancing your mortgage that cannot be negotiated. This includes taxes and fees paid to your State for transfer and recording the deed or a survey. Your appraisal fee cannot usually be negotiated because this is done by an independent appraiser that you have no say in selecting. When it comes to services for title searches and your homeowners insurance, inspections and attorney fees you have a voice in selecting who you’re working with, meaning you could shop for services with lower fees. Once you compare third-party fees from several lenders you’ll get a sense for what’s reasonable and which lenders are padding their fees.

How to Haggle With Mortgage Lenders

Shopping for the best deal on the lowest refinance rates is difficult because different lenders have different fee structures. Some lenders even invent names for their fees just to confuse inexperienced homeowners. There are also junk fees that you have no business paying like fees for copies and couriers.

You can find a list of the fees on your Truth-in-Lending disclosure form and on the HUD-1 settlement statement. It’s a good idea to go over each fee line-by-line with your loan officer and question everything.

Want the best deal refinancing your home loan? Question Everything.

Once you’ve done this you can approach your loan officer with rival lenders’ offers as leverage for negotiating. “This is what lender XYZ is offering with these fees. I’ll pay you this amount for this mortgage rate.”

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You can learn more about negotiating for the lowest refinance rates and fees from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started finding the lowest refinance rates AND fees from today’s best mortgage companies…

What is a Mortgage Broker?

The right mortgage broker arranging your home loan can save you thousands of dollars from unnecessary points and junk fees. The wrong mortgage broker could turn your home loan into a train wreck that could take years to recover. What is a mortgage broker? Someone you should approach with a healthy dose of suspicion. Here are several tips to help you find the right person to arrange your next home loan.

Mortgage Brokers Are Salespeople

Brokers originate home loans for lenders, receiving a commission for their work. The mortgage broker’s job is to connect you with the best lender for your situation, be it purchase or refinancing. The problem is many mortgage brokers have earned a bad reputation as sleazy sales types out to earn a commission at your expense.

Ideally your mortgage broker serves as an impartial intermediary between you and the bank:

You < –> Your Mortgage Broker < — > The Bank or Lender

Mortgage brokers can be described as selling you retail home loan products from wholesale lenders and banks.

Mortgage Brokers Work For You

Many homeowners skip the middleman by going to their bank or a so-called direct lender. This strategy eliminates the mortgage broker in name only as you still pay a loan origination fee. Skipping the mortgage broker won’t get you wholesale purchase or refinance rates either. There is no cutting out the middleman when it comes to mortgage loans. You’ll pay one way or another.

Since you’re going to be paying for loan origination anyway why not find the best mortgage broker to arrange your home loan? The right person works for you gathering important documentation about your home, income, employment and credit making sure you sail through underwriting without a hiccup. The mortgage broker can also place you with the lowest cost mortgage solution for your situation, educating you along the way.

How Do Mortgage Brokers Get Paid?

Your mortgage broker gets paid form one of two sources. They can charge you a loan origination fee which you’ll pay out-of-pocket at closing, OR they can accept lender paid compensation in the form of Yield Spread Premium. Many homeowners incorrectly think that the government outlawed Yield Spread Premium; however, the government only prohibited charging you for loan origination and accepting Yield Spread Premium from the lender.

So what’s Yield Spread Premium? Simply put, it is cash paid by the lender for the broker marking up your mortgage interest rate. This cash can be used to pay your origination fee and closing costs depending on how much markup you’re willing to accept. Yield Spread Premium is what pays for those “No Fee” refinance offers you see lenders advertising.

Use Your Mortgage Broker to Rate Shop

The main advantage of using a broker to arrange your home purchase or mortgage refinancing is the ability to leverage their contacts and experience to get you the lowest mortgage rates. Brokers can weed through lender junk fees and unnecessary discount points to get you the best deal. The problem is there are mortgage brokers out there that abuse their position by overcharging their origination fee.

Bad mortgage brokers are easy to spot. If yours is too busy selling home loans to process their own paperwork and charges you for a third-party loan processor you should consider taking your business elsewhere. You want a mortgage broker that’s going to give your home loan the attention it deserves without overcharging you.

It’s a good idea to shop around from several brokers before choosing one to arrange your home loan. Different mortgage brokers will have different connections with lenders that others won’t. Be sure and ask what lenders a broker works with before choosing one.

How Much Should You Pay Your Mortgage Broker

If you’re paying the origination fee yourself and not taking higher mortgage rates for Yield Spread Premium a reasonable amount is one percent of your home loan amount. Keep in mind that loan origination fees are negotiable and vary from one mortgage broker to the next. Don’t be afraid to haggle with the person arranging your home loan to get the best deal. Remember the less you pay closing on your new home loan the more benefit you’ll get from today’s low rates, especially when refinancing.

Click Here For More Details…

You can learn more about finding the best person to arrange your next home loan while avoiding unnecessary points and fees by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started with today’s best mortgage lenders without falling for unnecessary fees…