How to Refinance a Mortgage

mortgage common sense How to Refinance a MortgageIf you are considering taking advantage of lower mortgage rates to get a lower mortgage payment and are looking for information on how to refinance a mortgage, here are several tips to help get you started.

You should know that mortgage brokers are the key to getting a good deal when refinancing; however, you should also know that these people earn their living by commission.

The home loan that gets your mortgage broker the largest commission is probably not going to be the best loan for you.

How to Refinance

Refinancing your home mortgage is not all that different from any other purchase you make. Mortgage loans are retail products meaning that there is a middleman that marks up your loan for a profit. You already know that buying consumer products wholesale can save you a bundle of cash; the same is true when it comes to your mortgage loan. Mortgage brokers have access to wholesale rate Find the right broker and you can get a wholesale rate when refinancing your home loan.

How Mortgage Brokers Are Paid

There are several ways mortgage brokers are compensated for arranging your mortgage loan. Your Broker can charge you origination fees at closing. Your broker could also markup up your mortgage rate for a commission from the wholesale lender behind your mortgage. Mortgage brokers also charge a number of fees considered to be “junk fees.” One example of a junk fee you might find on your Good Faith Estimate is a “Mortgage Broker Courier Fee.” This is a made-up fee headed straight for your broker’s pocket if you agree to pay it.

How to Refinance a Mortgage with a Wholesale Rate

You can get a wholesale mortgage rate for your loan by finding the right mortgage broker. The best brokers don’t work for large companies like Countrywide or for large mortgage web sites like Lending Tree. The best mortgage brokers are local and self employed. Find a self employed mortgage broker working out their home? Better still. The reason small time self employed mortgage brokers are better is because they do not employ a sales staff or in many cases pay for posh office spaces. You’re much more likely to negotiate a good deal from this type of broker simply because they can afford to do so.

Mortgage Terminology 101: Yield Spread Premium

The first term you need to know when learning how to refinance a mortgage is Yield Spread Premium. This is simply the fee paid by your lender because the broker marks up your mortgage rate. This markup is what makes mortgage rates retail. The lender rewards the broker with one percent of your mortgage rate for every quarter percent they markup up your interest rate. You won’t find Yield Spread Premium on your Good Faith Estimate and many brokers get defensive, even angry when you ask them about it.

There are two ways to find out if your mortgage broker is marking up your mortgage rate for Yield Spread Premium. The first place this markup is disclosed is on the rate lock confirmation from the lender. Ask your broker to see the original rate lock confirmation. If the broker refuses because it’s “confidential” from the lender you know that they are not being honest with you and are lying about your mortgage rate. Find another mortgage broker willing to show you the lenders rate lock confirmation.

The second opportunity you’ll have to spot Yield Spread Premium is on your HUD-1 Settlement Statement. Yield Spread Premium will be disclosed in section 800 on the HUD-1 around lines 810-811. Many brokers try and disguise their commission…it could be listed as Mortgage Broker Rebate or Yield Spread Premium paid to broker.

Where to Go from Here

Avoiding Yield Spread Premium is the most important aspect of getting a good deal for your home loan. You can learn more tips for saving money, including how to recognize junk fees, by registering for the free video tutorial on this site.

P.O.C Mortgage Charges

wells fargo mortgage P.O.C Mortgage ChargesIf you are in the process of refinancing your mortgage you might encounter POC charges. POC mortgage charges stands for “Paid Outside of Closing” and is a fee paid to your mortgage broker. Why does your broker receive this money and should you be concerned about how it affects your mortgage rate?

Here are several tips to help you understand POC charges and avoid being taken advantage of when refinancing your mortgage loan.

What Are Paid Outside of Closing Fees?

This charge appears on your HUD-1 statement on line 810-811. It is frequently called a mortgage broker rebate but you will also see it called Yield Spread Premium or YSP paid to broker. This fee is a commission paid by the lender for closing your loan with an above market mortgage rate. That’s right; your lender rewards the broker for overcharging you.

P.O.C. Charges = Yield Spread Premium

Yield Spread Premium is the technical term for the incentive paid to your broker for overcharging you. Your broker knows the mortgage rate you qualify based on your financial details; (it actually takes sixteen pieces of financial information form you to accurately quote a mortgage rate) however, your broker marks up the rate based on what they think you’ll pay. Imagine a used car salesman pricing a car based on how naive they think the buyer is…mortgage brokers work in much the same.

Your mortgage broker marks up your rate because the lender pays a bonus of one percent of your loan amount for every quarter percent they overcharge you. This kickback from your lender is the Yield Spread Premium and will often double or even triple your mortgage broker’s compensation for originating your loan, at your expense of course. How Can You Avoid POC Mortgage Charges?

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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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Mortgages for Dummies

As a homeowner you may be interested in lowering your monthly mortgage payment or cashing out equity in your home. If you currently have an adjustable interest rate mortgage and are worried about your monthly payments going up, now is the time to refinance to a fixed interest rate loan.

Lower Your Monthly Mortgage Payments – Even If You Have Poor Credit

If you have less than perfect credit, (even downright bad credit) you can still refinance your home and lower your payments. You may have to use a subprime mortgage lender and pay a higher interest rate, but you can still find good deals from these lenders.

To find the best deal for your mortgage you need to shop around from a variety of lenders. Online mortgage lenders and brokers are excellent resources to help you do this. Utilizing the internet and a good search engine you can quickly compare a variety of lenders and mortgage products.

Another way to lower your monthly payment is to select a mortgage with a longer term. The term of a mortgage is the length of time your mortgage lender allows you to pay off the loan. Mortgages traditionally had terms of 30 years; however, 40 year mortgage loans are becoming available in today’s marketplace.

Cashing Out Equity to Pay Debt

If you have equity in your home and are considering cashing out to pay off debts now is a good time to do it. Home equity loans and 2nd mortgages are in strong demand in today’s marketplace. When you pay off excessive debt you will improve your credit rating and make your monthly budget more manageable.

When it comes to financing your home, the biggest mistake you can make is skimping when it comes to doing your homework and shopping around. The more you know in the mortgage industry, the more you will save.

You can learn more about saving money on your next mortgage by checking out our free video guide to mortgages and mortgage refinancing.