If 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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