Typical Loan Origination Fee

when refinancing makes sense Typical Loan Origination FeeIf you’re in the process of taking out a new home mortgage loan you might have questions pertaining to loan origination fees. What is a typical loan origination fee and what about mortgage brokers that claim the lender is paying this fee for you? There are no free lunches when it comes to mortgages and loans with “no origination fees” always come with a catch. Here is what you need to know about the typical loan origination fee in order to avoid paying too much for your next home mortgage loan.

Your Typical Loan Origination Fee

What’s a fair amount to pay for mortgage loan origination? First of all, you should understand what the loan origination fees are for. Your mortgage broker or loan company charges you a fee for their part in arranging your home loan known as a loan origination fee. Typical loan origination fees vary by broker and mortgage company; however, a one percent origination fee is a reasonable amount to pay for arranging your home loan. Many mortgage companies and brokers overcharge loan origination fees so you’ll want to comparison shop until you find someone willing to work for a flat one percent.

What About Hidden Origination Fees?

There is a hidden fee you need to know about before taking out a mortgage loan. Many mortgage companies charge you an origination fee, (often overcharging you) and then take a hidden fee paid by the lender on top of it. This hidden fee drives up your mortgage payment unnecessarily and often doubles even triples the compensation your broker receives for their work. You get stuck paying as much as a hundred dollars or more per month more than you need to and the broker doubles their take at your expense.

What is this hidden fee the Secretary of Housing and Urban Development blames for overcharging homeowners in the United States to the tune of sixteen billion dollars this year alone? I am of course talking about Yield Spread Premium. Don’t worry if you’ve never heard of Yield Spread Premium (YSP) as most homeowners have not.

The simplest definition of Yield Spread Premium is a fee paid by mortgage lenders for home loans that are locked and closed with higher than necessary mortgage rates. Your mortgage lender approves you for a specific mortgage rate based on your credit and financial details; however, the mortgage company or broker almost always quotes you a much higher rate to get this extra commission from the lender. As a result your mortgage payment is much higher than it need be and the reason most people overpay for their mortgage loans.

If you want the lowest possible mortgage rate for your home you’ll need to avoid this unnecessary markup for a hidden origination fee. You don’t have to be a financial guru to find someone willing to work for a one percent loan origination fee without including Yield Spread Premium on your mortgage; you simply need to find the right person for the job.

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Comparing Lender Rates

If you are in the process of refinancing your home mortgage loan you might be wondering what the best way for comparing lender rates is.

Many homeowners approach refinancing the same way they approach purchasing a kitchen appliance; if you shop for a mortgage loan in this manner you can expect to overpay thousands of dollars every year that you keep your home loan.

Here are several tips to help you comparing lender rates without overpaying when refinancing your home mortgage loan.

Comparing Lender Rates Online

The Internet is an excellent resource for comparing mortgage rate quotes; however, you should know that nearly all of the quotes you receive from mortgage companies and brokers include commission based markup. While there’s nothing wrong with the person tasked with arranging your home loan, this is what the mortgage origination fee you pay is for. It makes more sense to pay a reasonable loan origination fee once at closing rather than to pay this fee over and over again every year in the form of a marked up mortgage rate. The problem is that most homeowners don’t understand that their mortgage rate has been marked up and pay this on top of the origination fee.

How Much Should You Pay for Loan Origination?

A reasonable loan origination fee is one percent of your loan amount. You don’t want to accept any rate quote that includes commission based markup for reasons we’ll discuss in a moment. What is this commission based markup and how does it drive your mortgage payment up unnecessarily? Once you understand how this commission based markup of your mortgage rate works you’ll be on the right track to finding a broker to arrange your loan without this markup.

Mortgage lenders pay a fee known as Yield Spread Premium when your mortgage company or broker locks and closes your home loan with a higher than necessary interest rate. Lenders pay a fee because mortgages with higher than market interest rates bring them a premium when sold to investors on the secondary mortgage market. In addition to the loan origination fee that the mortgage broker is probably overcharging, the mortgage lender pays this person one percent of your loan amount for every .25% they markup your interest rate. Not only does this result in your not getting the mortgage rate you deserve it results in an unnecessarily high mortgage payment.

Here’s an example to illustrate how Yield Spread Premium drives up your mortgage payment unnecessarily. Suppose for example you are refinancing your home for $315,000 with a mortgage rate quote of 6.5%. What you don’t know is that you were actually approved for a mortgage rate of 6.0% and the broker marked it up to 6.5%. Using a Mortgage Interest Calculator we can calculate your payment on a 30 year, fixed rate loan with both interest rates. Your monthly payment at 6.5% would be $1,991… If you had the mortgage rate you deserve at 6.05 your payment would only be $1888. That’s a difference of $1,236 you’re throwing away every year!

How to get the Mortgage Rates You Deserve

You can get the Refinance Interest Rate that you deserve by learning how to recognize and negotiate Yield Spread Premium on your loan. Negotiating refinance loan rates that do not include Yield Spread Premium is not as difficult as it sounds; you simply need to find the right person, (mortgage broker) to arrange your next home loan. Mortgage brokers have access to wholesale rates so your best bet for getting a home loan that does not include Yield Spread Premium is to find the right one for the job.

Mortgage Brokers, Not Bank Refinance

There’s a problem with bank mortgage loans that you might not be aware of. Banks are exempt from the Real Estate Settlement Procedures Act. This disclosure legislation used to cover both banks and mortgage brokers, requiring that they both disclose their markup and profit margins on your home loan. The Banking Lobby spent millions of dollars lobbying Congress to have the law changed and in 1999 banks were excluded from this important disclosure legislation. Aside from the fact that banks are not required to play by the same rules as other lenders you’ll never know how much the bank marked up your refinance interest rate because the bank is not legally obligated to tell you. If you want the best mortgage deals when refinancing you’ll simply need to find the right mortgage broker to arrange your home loan for you.

Who is the right broker to find you the best mortgage deals? The right mortgage broker for the job isn’t going to be one working for a large firm with an expensive advertising budget. These brokerage firms most likely have too much overhead to negotiate the kind of deal I’ve described here. If you want the best mortgage deals available you’ll need to find a self-employed mortgage broker, working from home if you can, that is willing to negotiate origination fees and Yield Spread Premium.

Start by telling prospective mortgage brokers that you are willing to pay a one percent origination fee and will not accept any house refinance that includes Yield Spread Premium. You can keep your mortgage broker honest by asking to see the written rate lock confirmation provided by the mortgage lender as this document will clearly disclose Yield Spread Premium on your loan. You can also find the fee paid by the lender on your HUD-1 Settlement Statement in section 800.

You can learn more about getting the best mortgage deals when refinancing without overpaying the mortgage broker or lender by checking out my free Underground Mortgage Videos. Here’s a sample of what you’ll learn: This module is called “Your Mortgage Lender’s Dirty Secret…”

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