Don’t Get Hoodwinked Obsessing Over The Lowest Refinance Rates

One of the most common mortgage mistakes is obsessing over getting the lowest refinance rates at the expense of fees. If you choose a lender based on refinance rates alone you will overpay. Here are several tips before you refi for getting the best refinance rates without paying lender junk fees or discount points.

Lowest Refinance Rates Does Not Mean The Best Deal

Refinance rate shopping is difficult enough without trying to compare everything under the sun across different mortgage loan programs. Once you’ve decided what program is right for you, comparison shopping becomes ten times easier. No matter what your banker might tell you identical mortgage programs from different lenders share the same index. If your credit score is not a limiting factor choosing the best mortgage lender boils down to the fees you’re paying at closing.

Suppose you’re comparing two lenders and the first one quotes you a 30-year fixed home loan at 4.75 percent. The second knows this is higher than market and quotes you 4.875 but asks how long you’re planning on keeping your home. Intent on selling you a 5/1 ARM with higher closing costs including discount points at 3.0 percent.

If you fall for this sales tactic you’re overpaying because you made the mistake of fishing for refinance rates instead of hunting for the best deal. The first rule of refinancing is not to let mortgage companies talk you into switching programs once you’ve decided which one is best for you. It’s next to impossible to make an apples-to-apples comparison of refinance rates when your salesperson is trying to muddy the waters with more attractive but expensive choices. Pick a loan program and stick with it.

Another problem with refinance rate shopping is getting a trustworthy mortgage quote. Some bankers and brokers take the used car salesman approach to selling you refinance rates. Want four percent? Sure I’ve got you four percent, no problem! Then when closing rolls around you’re hit with discount points, a lofty origination fee, commitment fees, processing junk fees and underwriting fees.

The “secret” to getting the best refinance rates is to focus on shopping for the lowest interest rate AND fees with quotes on the same program across different lenders.

What Mortgage Fees Matter When Refinancing?

When you’re comparing refinance rates from different lenders with the same program what fees should you be looking at? Many of the third party charges like attorney fees and title insurance shouldn’t vary much across different lenders in your area and you won’t gain much splitting hairs over title insurance companies.

The fees that matter are found in section 800 of your Good Faith Estimate starting with the loan origination fee. This is paid to the person or company arranging your home loan and varies widely from one loan originator to the next. I’ve seen community based credit unions charge as little as a flat $400 for their loan origination fee. One percent is considered reasonable; however, the less you pay at closing the more benefit you’re getting from the lowest refinance rates.

What about junk fees? Rate lock fees, processing fees, application fees and administrative fees are all considered junk fees that can be negotiated for you to pay less or not at all. Remember, the test of how good of a deal you’re getting comes not from how low your interest rate is but how much that rate is costing you.

Let Your Break Even Point Be Your Guide

You can estimate how much benefit you’re getting from refinancing your mortgage by calculating your break-even point. Break-even points are an approximation at best depending on the program you choose but the calculation is still helpful to decide if mortgage refinancing with a particular offer is worth your while.

This only works if you’re choosing the same loan program as your existing mortgage. If you choose a home loan with a longer term length you’ll never break even recouping your closing costs thanks to the additional years you’re financing.

To approximate your break-even point add up all of the fees you’re paying out-of-pocket closing on your new home loan. Then divide this figure by the amount your mortgage payment is going down each month. This gives you (approximately) the number of months it’s going to take you to break even recouping closing costs from your lower payment.

If you sell or start serial refinancing like many of your neighbors it’s going to be impossible to break even meaning you’re losing money no matter how low your interest rate.

4 Steps to Getting the Lowest Refinance Rates

No one wants to overpay for anything let alone the most important purchase most homeowners make, your mortgage loan. Here’s your takeaway from today’s article in three easy steps for getting the best mortgage rates without paying too much.

  1. Go Hunting For Refinance Rates, Not Fishing
  2. Decide up front before you do anything else which mortgage program is best for your next home loan and stick with it. Don’t let a fast-talking broker bamboozle you into a different program with a shiny annual percentage rate. That’s fishing for refinance rates and a sure ticket to overpaying at closing.

  3. Don’t Waste Effort Trying To Time The Market
  4. If a broker tells you they can time the market for refinance rates they’re full of beans. There are simply too many variables to try and time mortgage refinance rates. General rule of thumb is that bad economic news means lower refinance rates. Beyond that you’re better off investing your time comparing fees from different lenders across identical programs.

  5. Don’t Rely On The Annual Percentage Rate
  6. Annual Percentage Rate or APR is the most manipulated marketing tool in your lender’s arsenal. More often than not choosing the home loan with the lowest APR gets you a mortgage with the highest out-of-pocket costs thanks to discount points. Don’t be duped by that low, low APR. Pay attention to the fees listed in section 800 of your Good Faith Estimate and compare them to the fees of other lenders with identical programs.

  7. Time Costs You Money
  8. Most lenders have a backlog of refinancing applications. Be prepared to wait as long as 60 days to close on your transaction. The problem is the longer you lock your refinance rates the more expensive it gets. Find out how long potential lenders are averaging to close and factor that in your decision when choosing an offer. Make sure you’re comparing refinance rates with the same lock period and that lock gives you ample time to close.

That’s the basics you’ll need to know to get the lowest refinance rates from today’s best lenders without paying junk fees. Sounds easy right?

Don’t let a pushy banker try and confuse the process with slick marketing tricks like comparing rates across different programs. Mortgage lenders use confusion to their advantage and have successfully made your neighbors overpay…don’t fall for the same trap.

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

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Best Refi Rates Avoiding Hidden Markup

Looking for the best refi rates for your next home loan but want to avoid unnecessary markup and junk fees? Did you know that hidden markup of even the best refi rates will result in homeowners in the United States overpaying sixteen billion dollars this year according to the Secretary of Housing and Urban Development? Here are several of my most effective money-saving tips to help you get the best refi rates without hidden junk fees for your next home loan.

Best Refi Rates Online

It’s true that Internet can be a great resource for finding the best refi rates; however, what you might not know about these rate quotes is that they all include hidden markup intended to create a commission for the person arranging your home loan. There’s nothing wrong with your broker getting paid for their work, that’s what the loan origination fee found on your HUD-1 Settlement Statement is for. The problem is that banks and many brokers use hidden fees for their best refi rates to double, even triple their commission. This comes at your expense in the form of higher than necessary payments.

Hidden Mortgage Rate Yield Spread Premium

How does this hidden commission from your best refi rates work? Lenders reward brokers and companies like Lending Tree for locking and closing your home loan with higher than necessary interest rates. You’re not really getting the best refi rates available when the broker is marking up your interest rate behind your back to get a commission from the lender are you? For every .25 percent that the broker marks up your best refi rates, the home loan lender pays them a commission of 1.0 percent of your home loan amount. Think of it as a kickback for the broker overcharging you that results in a significantly higher payment every month. How much higher you ask? Here’s an example to illustrate what this hidden fee known as “Yield Spread Premium” does to your monthly payments.

The Dark Side of Yield Spread Premium

Suppose for example you’re refinancing your California mortgage loan for $375,000. Your broker quotes you an interest rate of 6.25% and charges you a loan origination fee of 1.75%. This origination fee means that at closing you’ll be required to pay $6,562 for the brokers work on your home loan. If you agree to this brokers “best refi rates” for your home loan your payment on a fixed, thirty-year home loan will be $2,308 a month. This seems like a pretty straight forward refi; however, the problem aside from the loan origination fee is what your broker isn’t telling you.

You should never agree to pay more than one percent for the broker fee. This is a perfectly reasonable loan origination fee for their work on your loan. The problem with this and nearly all of the home loans in place with your neighbors is that the so called best refi rates include hidden Yield Spread Premium. In this example what your broker isn’t telling you is that you actually qualified for a 5.5% interest rate but your broker marked it up to collect 3.0 percent Yield Spread Premium, a whopping $14,062 commission from the lender for locking and closing your home loan with a higher than necessary home loan rate.

If you had the interest rate you deserve at 5.5% your payment on the same 30 year, fixed-rate home loan would only be $2,129 per month. That’s a difference of $2,148 of your cash gone every year you keep this lousy home loan. Want to put this $2,148 back in your pocket every year while getting the best refi rates available?

You can learn more about getting the best refi rates without paying junk fees or the unnecessary commission that drives your payments up thousands of dollars by checking out my free Underground Mortgage Refinancing Videos.

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Here’s a quick sample to get you started today by blowing the lid of the mortgage industry’s dirty little secret that’s costing your neighbors in the United States sixteen billion dollars this year alone.

Mortgage Refi Secrets Revealed

If you’re considering a mortgage refi for your existing home loan there are several things you must know to avoid overpaying. The mortgage refi process is filled with banker fat cats vying to make a buck at your expense. Overpaying usually results in paying a hundred dollars or more per month than you should be; add to this the junk fees that brokers and lenders try to slip in and you could easily be out thousands of dollars every year for no good reason. Here are several of my best mortgage refi secrets that promise to save the average homeowner $1200 per year from unnecessary markup and junk fees.

Mortgage Refi Pitfalls to Avoid

The biggest pitfall that you need to know about is the trap of comparison-shopping. How can comparison-shopping be a bad thing you ask? Simply put most homeowners, including nearly all your neighbors rely on incomplete or just plain false information provided by lenders in the form of the Good Faith Estimate (GFE) and the Annual Percentage Rate (APR). The problem with your Good Faith Estimate is that it is simply an estimate provided by the lender in “good faith.” Mortgage lenders routinely low-ball the fees provided in these estimates because there is no accountability under the Real Estate Settlement Procedures Act (RESPA).

What about the Annual Percentage Rate (APR) you ask? After all the APR is mandated by Truth-in-Lending laws that banks and lenders can’t skirt. Well, when it comes to home loans the APR you receive is based on the figures in the Good Faith Estimate which we already know lenders routinely low-ball. The Annual Percentage Rate is just as worthless when comparison-shopping as your Good Faith Estimate. This is why nearly all your neighbors that approach their mortgage refi hell-bent on comparing every Good Faith Estimate they can get their hands on still overpay thousands of dollars every year.

How to Pay Less for Your Mortgage Refi

You can put thousands of dollars back in your pocket on your mortgage refi simply by avoiding unnecessary markup and junk fees. Sounds difficult, right? It’s easier than you think and you don’t even have to be a personal finance guru to pull it off. Rather than focusing on comparing mortgage refi quotes like your neighbors did until they can’t see straight all you have to do is concentrate on finding the right person to arrange your mortgage refi. This is easy-peasy I promise once you once you know how to go about it.

Avoiding Mortgage Refi Markup

For the purposes of this discussion, I’m only talking about home loans that are arranged by mortgage brokers. I never recommend banks when refinancing because your bank is exempt from the Real Estate Settlement Procedures Act and banks routinely exploit this loophole to bolster their profits at your expense. I mean why would you ever consider taking out a mortgage refi loan with a lender that doesn’t have to play by the rules? You simply wouldn’t.

This doesn’t mean that brokers don’t play dirty when it comes to your mortgage refi which is why it’s so important to find the right broker to arrange your home loan. How do brokers play dirty when it comes to your mortgage? There’s a little known fee paid by mortgage lenders to any broker that locks and closes mortgage refi loans with a higher than necessary interest rate. Avoid this unnecessary markup of your interest rate and you’ll bag yourself a wholesale mortgage rate and keep thousands of dollars of your hard-earned cash in your pocket every year.

You can learn more about avoiding Yield Spread Premium and other junk fees on your next mortgage refi by checking out my free Underground Mortgage Refinancing Videos.

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Here’s a quick sample to get you started today by exposing your mortgage refi lender’s dirtiest secret.

Lowest Rates Mortgage Lenders

If you are in the process of taking out a new mortgage loan to refinance you existing mortgage or purchase a new home, there are several things you’ll want to know about mortgage rate quotes to avoid paying too much. You may have arrived here searching for the lowest rates mortgage lenders; however, getting the lowest mortgage rates can be tricky due to hidden markup and junk fees. Here are several of my best mortgage tips to help you find the lowest rates mortgage lenders for your next home loan without paying junk fees.

Lowest Rates Mortgage Lenders

The first thing you need to know about mortgage lenders is that not all lenders are the same. Choosing one type of lender over another can result in paying higher mortgage rates. There are three types of mortgage lenders that I’ll discuss today, as well as the pros and cons of each. The first type is your bank or credit union. The main advantage of taking out a mortgage with your bank is convenience…what could be easier than transferring funds from your checking account every month to pay your mortgage bill? Bank mortgage rates aren’t the greatest, especially when you compare them to wholesale mortgage rates. This is because the bank makes the majority of their profit from your home loan by selling your mortgage to investors on the secondary market. Home loans with higher than market mortgage rates make them a premium profit known as Service Release Premium. Another problem with bank originated mortgage loans is that thanks to a little known loophole in the Real Estate Settlement Procedures Act (RESPA) your bank is not required to disclose their markup or profit margin on your home loan.

The second type of lender we’re going to discuss today is known as a broker bank. In the 90s the Banking Lobby in the United States successfully lobbied Congress to have the RESPA laws changed to exclude banks. This means banks have an unfair advantage over mortgage brokers that are required to disclose any markup of your mortgage rate for a profit. When the law changed a number of mortgage companies and brokers changed their business models to operate like a bank. This means they formed companies that fund home loans with their own cash rather than reselling loans from wholesale lenders. This change in their business model allows these mortgage broker banks to exploit the same loopholes enjoyed by banks. If you take out a mortgage loan from your bank or a broker bank you’ll never get the lowest mortgage rates when refinancing or purchasing your home. How do you recognize a broker bank? Simply ask what name they close your mortgage under. If they close in the name of their company rather than a wholesale lender you know you’re dealing with a mortgage broker bank.

Wholesale Mortgage Loans

Most people, including many mortgage brokers, will tell you that you can’t get wholesale mortgage rates. While many mortgage brokers markup mortgage rates offered by wholesale lenders for a commission known as Yield Spread Premium, it is possible to find a mortgage broker willing to work for a flat origination fee of one percent without marking up your mortgage rate. By paying the origination fee up front, (one percent is perfectly reasonable for the mortgage broker fee) you avoid unnecessary inflation of your mortgage payment. So how do you find a wholesale mortgage loan? You might think by contacting a wholesale mortgage lender directly you’ll be able to cut out the middleman and refinance or purchase with a wholesale mortgage rate. Unfortunately, this isn’t the case. Wholesale mortgage lenders have retail lending divisions so if you want a wholesale mortgage rate you have to find the right mortgage broker to arrange your home loan.

How to Find the Right Mortgage Broker

Getting a wholesale mortgage rate isn’t as hard as it sounds. You don’t have to be a financial guru to pull it off; you’ll just need to find the right mortgage broker for the job. The problem is that many shady mortgage brokers rely on Yield Spread Premium to boost their bottom line at your expense. You’re already paying a perfectly reasonable origination fee for this person’s work arranging your home loan so any commission paid by the mortgage lender for marking up your mortgage rate only drives up your monthly payment unnecessarily.

How do you find the right mortgage broker when refinancing or purchasing your home? Start by telling prospective mortgage brokers that you understand how Yield Spread Premium works and that you will not accept any home loan that includes this markup. Offer to pay a reasonable origination fee for the mortgage broker’s services. One percent is a perfectly reasonable origination fee and there are many honest mortgage brokers willing to arrange your home loan without taking Yield Spread Premium.

2010 RESPA Changes

In a lackluster attempt to protect homeowners from mortgage broker abuse of Yield Spread Premium, the Department of Housing and Urban Development (HUD) enacted several changes effective January 1st, 2010. Mortgage brokers now have to include Yield Spread Premium as part of the origination fee in your loan documents. This doesn’t really help homeowners because mortgage brokers will go on telling you that since the lender is paying that portion of the origination fee and it’s not coming out of your pocket that you shouldn’t worry about it. No big change there. HUD has also revamped the Good Faith Estimate and you will now receive three pages of low-balled fees instead of the two page GFE you’re used to. These changes are pretty much cosmetic and do very little to protect homeowners from abusive mortgage practices. Of course, banks and broker banks are still exempt from RESPA legislation and can charge their borrowers pretty much whatever they like.

You can learn more about getting a wholesale mortgage rate for your next home loan by checking out my Underground Mortgage Refinancing Videos.

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Here’s a sample of what you’ll get when you sign up…this video shows you more about how Yield Spread Premium drives up your mortgage payment unnecessarily and what you can do to avoid it.

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.