Mortgage Brokers Have a Dirty Little Secret

mortgage markup Mortgage Brokers Have a Dirty Little SecretDid you know your mortgage broker has a dirty little secret? Most professions have a few skeletons in the closet but this one could cost you thousands of dollars every year that you have a home loan unnecessarily.

In fact, this “secret” is so bad that the Secretary of Housing and Urban development said it will be responsible for fleecing American homeowners out of sixteen billion dollars this year alone. What is it? Read the following mortgage tips to help you avoid paying too much for your next home loan.

Mortgage Brokers Compensation

Mortgage brokers should be paid for their work like anyone else; however, like a used car salesman they have ways of padding their commission at your expense. You can expect any mortgage brokers you work with to charge you an origination fee for their services. This origination fee will be clearly marked on your Good Faith Estimate and HUD-1 statement; however, there is a hidden mortgage broker fee you need to be aware of before refinancing your home mortgage.

Mortgage Brokers Secrets

The second way mortgage brokers get paid for their work is a hidden commission from the lender. This commission will never appear on your Good Faith Estimate and most brokers have clever ways of disguising it on your HUD-1 settlement statement. This secret commission from the mortgage lender is called Yield Spread Premium and if you agree to a mortgage with this hidden markup it can cost you thousands of dollars every year that you keep the loan.

Yield Spread Premium is Hidden Markup

Here’s how Yield Spread Premium works. Suppose you are refinancing your home for $250,000 and the mortgage broker quotes you an interest rate of six percent while charging you a two percent origination fee. On the surface six percent sounds like a good deal, even though the origination fee is double what you should be paying, you agree to the loan. This means you have to pay $5000 to the broker for loan origination, your home gets refinanced and everything went smoothly, right? Wrong… What your mortgage broker isn’t telling you is that you were approved for a mortgage rate of 5.25 percent, but they marked it up to get Yield Spread Premium from the lender.

Yield Spread Premium is a percentage of your loan amount created when mortgage brokers lock and close loans with higher than necessary interest rates. You get stuck with a payment based on an interest rate higher than you deserve just to create a commission for the broker. A commission paid in addition to the loan origination fees your mortgage broker is already probably overcharging you…

Hidden Mortgage Markup

How does this hidden markup of your mortgage rate affect your monthly payment amount? In the previous example Yield Spread Premium adds a hundred dollars a month to the payment for a thirty year fixed rate mortgage. That’s $1200 a year you’re throwing down the drain due to your mortgage broker’s deception! Most mortgage brokers don’t talk about Yield Spread Premium and many become angry and defensive when questioned about the markup. Can you blame them? Yield Spread Premium effectively doubles even triples their compensation on the loan… at your expense of course.

You Can Avoid Overpaying for Your Next Mortgage

You don’t have to be a financial guru to get a good deal on your next home mortgage loan. Tell potential mortgage brokers that you will not accept any loan that includes Yield Spread Premium and that you’re willing to pay a one percent origination fee for their services. There are honest mortgage brokers out there willing to work for a one percent origination fee without marking up your mortgage rate and I can send you a list of them in your area.

There are other mortgage junk fees that you need to keep an eye out for: mortgage broker courier fees and rate lock fees are examples of junk fees you should never agree to pay when refinancing your home loan. Before closing on the new loan make sure you get a copy of the HUD-1 settlement statement and go through it with a fine-toothed comb; don’t rely on the Good Faith Estimate to look for these junk fees as this document is little more than a marketing tool used to lure homeowners into overpriced loans.

What About Bank Mortgage Loans?

Can’t you avoid all of this markup and trickery by mortgage brokers simply by refinancing with a bank mortgage loan? While it’s true that your bank doesn’t charge Yield Spread Premium on their loans because your loan is funded with the bank’s money; however, banks have another kind of markup called Service Release Premium that accomplishes the same thing. Also, your bank doesn’t have to disclose Service Release Premium to you because of a loophole in the Real Estate Settlement Procedures Act. You’ll never get as a good a deal from your bank as you could from an honest mortgage broker that hasn’t included Yield Spread Premium on your loan.

What is a Good Mortgage Rate Anyway?

Refinancing your home loan and dealing with mortgage brokers and lenders can be overwhelming. How do you know a good deal when you spot one? The ideal mortgage rate when refinancing your home is what’s known as a par mortgage rate. “Par Mortgage Rates” are ones that don’t cost you discount points to get or create any commission for the Mortgage Company or broker. You’ll never get a par mortgage rate from any bank or credit union and can only get this from the right mortgage broker.

To learn more about refinancing your home loan with the lowest mortgage rate without junk fees or mortgage broker markup register for my Underground Mortgage Videos. You’ll have immediate online access to the mortgage videos as well as a list of mortgage brokers in your area that do not mark up mortgage rates for a commission without downloading anything to your PC or Mac.

What Are Par Mortgage Rates?

You might hear people talking about Par mortgage rates from time to time but what does Par mean? Par simply means a mortgage rate with no discount points or Yield Spread Premium attached. This is the rate you want when refinancing or taking out a new loan to purchase your home. Here are the basics you need to know about Par rates and how you can get one.

Discount Points And Yield Spread Premium

annual percentage rate What Are Par Mortgage Rates?When retail mortgage rates are quoted you may see them based on a certain number of “points.” Points, also called “Discount Points” are a fee you would be required to pay in order to qualify for a specific mortgage rate. One “point” is the equivalent of one percent of your loan amount and paying this fee is typically something you want to avoid; especially if you are trying to refinance with a wholesale rate. Points are easy enough to recognize because the lender tells you about them upfront; however, no one talks about Yield Spread Premium.

Yield Spread Premium is the markup your mortgage broker adds to get a commission from your lender. Lenders pay this “broker rebate” for closing loans with above market interest rates. They do this because the lender makes the majority of their profit by selling loans to investors on the secondary market…loans with above market mortgage rates bring the most profit.

If you want wholesale mortgage rates when refinancing your home loan you’ll need to find a mortgage broker willing to work for you without marking up your mortgage interest rate. You’ll have to pay a reasonable origination fee for their services; however, there are honest mortgage brokers out there who are willing to do this for you.

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You can learn more about paying less for your next home loan by checking out my free Underground Mortgage Videos.

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