The mortgage industry has a dirty little secret that according to the Secretary of Housing and Urban Development will cost homeowners in the United States sixteen billion dollars this year alone. If you haven’t learned how to avoid this dirty mortgage secret you’re already paying too much. Here are several tips to help you avoid overpaying for your next mortgage loan.
Yield Spread Premium
The dirty secrets revealed today pertain to Yield Spread Premium (YSP). Most people have never heard of YSP and do not understand how their mortgage broker is compensated for arranging their mortgage.
Yield Spread Premium Definition: The percentage of your loan amount created when your mortgage broker locks and closes your home loan with a higher than necessary mortgage rate.
Why is Yield Spread Premium a dirty mortgage secret? The majority of the time you will never know that the broker is marking up your mortgage rate. This markup is frequently charged on top of the origination fee you’re already paying for the broker’s work. Here’s an example to illustrate Yield Spread Premium in a typical refinancing transaction.
Suppose you are refinancing your home loan for $325,000 and the broker quotes you a mortgage rate of 6.75%, charging you 2% for the origination fee. If you agree to this fee you’ll pay $6,500 at closing for the broker’s part in arranging your loan. A reasonable fee to pay for loan origination is 1% of the loan amount…you’re already overpaying and we haven’t even gotten to the sneaky part.
Dirty Mortgage Secrets Revealed
What your mortgage broker isn’t telling you is that you qualified for a 6% mortgage rate and they’ve marked it up to create Yield Spread Premium. This percentage of your loan amount goes right in the mortgage broker’s pocket at your expense. For every .25% that the mortgage broker marked up your rate they receive 1% of your loan amount. In this example the broker is paid an extra 3% for overcharging you. In addition to the $6,500 you’re overpaying for the broker’s work the lender is paying $9,750 for charging you an above market interest rate.
What does this higher than market mortgage rate mean for you? Paying 6.75% interest on a $325,000 mortgage means your monthly payment will be $2,100 per month. Had you refinanced with the mortgage rate you deserved your payment would have been $1,940 per month. That’s $1,920 out of your pocket every year that you’re paying unnecessarily! There is good news for you today…you can avoid this unnecessary markup of your mortgage rate. You can learn more about refinancing your mortgage without overpaying by registering for my free video tutorial: mortgage secrets revealed.
Home mortgage rates are at near all time lows and many of you might be wondering how to predict when they will bottom out.
Mortgage interest rates are extremely difficult to forecast; sometimes when the Federal Reserve lowers short term interest rates mortgage interest rates actually go up. Sometimes when the stock market takes a hit and bond yields are up mortgage rates go down.
The truth is no one can actually predict when mortgage rates are going to bottom out…anyone that tells you can is selling you a loan.
How can you get the lowest mortgage rates?
Instead of relying on a questionable Mortgage Rate Forecast you can save yourself thousands of dollars by concentrating on what aspects of your mortgage rate you can control. There is one factor affecting your mortgage rate that 90 percent of homeowners have never heard about…namely the commission based markup of your interest rate. You might thing that when you apply for a home loan the lender runs your credit, looks at your qualifying ratios, and will approve your loan with the interest rate you deserve. This simply is not the case.
Beware Your Mortgage Loan Originator
Your mortgage company or broker you choose when taking out a mortgage actually determines whether or not you’ll pay too much for your next home loan. Pick the wrong person for the job and you’ll overpay thousands of dollars every year you keep this mortgage. All because of a little known fact called Yield Spread Premium. Simply put…this is the commission based markup of your interest rate. The broker arranging your mortgage gets paid in two ways. They get paid by charging you an origination fee for their work and they get paid by marking your mortgage rate up for a kickback for lender.
How Yield Spread Premium Works
Yield Spread Premium is a percentage of your home loan amount created when the broker or mortgage company locks and closes your loan with a higher than market interest rate. When you get approved for your home loan the lender approves you for a certain mortgage rate, say 5.5%. The broker turns around and marks this up telling you that you qualified for 6.25% because the lender pays them 1% of your loan amount for every .25% they markup up your loan.
Suppose you’re refinancing your home for $200,000 taking out a fixed rate loan for thirty years will get you a payment of $1,231 at 6.25%. If you had gotten the mortgage rate you deserve at 5.5% your monthly payment would be $1,135 per month. That’s $1,152 that you’re throwing away every year because your mortgage broker took advantage of you!
Mortgage Rates Predictions
As you can see it’s much more important to make sure your loan does not include Yield Spread Premium than it is to try and make mortgage rates predictions. When you avoid Yield Spread Premium you’ll be taking advantage of wholesale mortgage rates and can negotiate with your broker to pay only a one percent mortgage origination fee. There are honest mortgage brokers out there that do not abuse Yield Spread Premium; you just have to find the right person for your loan.
You can learn more about finding the right person to arrange your next mortgage without taking advantage of you by checking out my free Underground Mortgage Videos… and don’t let anyone pull the wool over your eyes making meaningless mortgage rates predictions.
If you are considering refinancing your mortgage and want the best Florida mortgage rates, there are several things you need to know about the rate quotes you receive.
The quotes you receive over the Internet and from your mortgage broker all include commission based markup that could result in your overpaying thousands of dollars every year.
Here are the basics you need to know about Florida mortgage refinancing to help you avoid paying too much for your next mortgage loan.
Beware Commission Based Markup
The commission based markup of your mortgage rate is called Yield Spread Premium. What is this markup? Yield Spread Premium is simply a percentage of your loan amount created when the mortgage broker or Internet mortgage company locks and closes your loan with above market interest rates. This is paid on top of any origination fees you’re already paying for that person arranging your loan.
Here’s an example of how Yield Spread Premium works. Suppose you are refinancing your Florida home mortgage for $350,000 and the broker tells you that you qualified for 6.5%. The broker charges you a one percent origination fee for arranging the loan; however, what you don’t know is that you were approved to a 6.0% mortgage rate and the broker marked it up to get a 2% kickback from the lender. In this example you pay the broker $3,500 for the origination fee and the lender pays them $7,000 more for overcharging you.
What Does Yield Spread Premium Do To Your Payment?
In the previous Florida Mortgage Refinancing example with a 30 year fixed rate mortgage your payment at 6.5% would be about $2,212. If you got the interest rate that you actually qualified for at 6.0% your payment would be only $2098. This is $1,368 you’re throwing away every year because the broker lied to you about your interest rate!
The good news for you and your home loan is that you can avoid this unnecessary markup of your mortgage interest rate and keep more of your money out of the broker’s pockets. You can qualify for a wholesale Florida mortgage rate and only pay a one percent origination fee to the person arranging your loan. You can learn more about Florida mortgage refinancing without paying commission based markup or junk fees by checking out my free Underground Mortgage Videos.
If you’ve decided to refinance your mortgage you might not know where to get started. Choosing the best lender for your home loan is important; however, finding a mortgage rate that does not include commission based markup will save you money…and more than you think. Here are the basics you need to know about low mortgage rate refinance loans.
What is Commission Based Markup?
Mortgage loans are like retail products. With the exception of banks, mortgage companies and brokers resell loans for wholesale lenders. You might think that if you call up a wholesale lender yourself you’ll bypass the middleman and save money. Unfortunately this isn’t the case…every wholesale lender has a retail division that deals with public and includes the same markup we’re trying to avoid. So what is this markup? The technical term is called Yield Spread Premium and is the mortgage industry’s dirty laundry.
Yield Spread Premium is a fee paid to your mortgage broker for locking and closing loans with higher than market interest rates. Lenders reward mortgage companies and brokers for overcharging people because these loans with above market rates bring them a hefty profit when the loans are sold to investors. How does it work? It’s actually very simple…for every .25% that your mortgage broker overcharges you’re the lender pays a commission for 1% of your loan amount. Think a quarter of a point is no big deal? Guess again…here’s an example to show you how much Yield Spread Premium is already costing you on your existing mortgage.
Suppose you purchase your home for $280,000 at 6.75%. The broker charges you a one percent origination fee for brokering the loan. What your mortgage broker doesn’t tell you is that you actually qualified for a 6% mortgage rate…they marked up your rate for the additional commission. When you closed on your home the broker’s fee was $2,800. Your broker pocketed an additional $8,400 from the lender for lying and overcharging you.
Yield Spread Premium & Your Mortgage Payment
A quarter of a point might not seem like much…even in this example what’s .75% between friends? More than you think actually. Supposing that you financed your home for 30 years with a fixed rate loan your payment at 6.75% would be $1,816 per month. What if you got the 6.0% rate that the lender approved you?
The same mortgage loan with a 6.0% interest rate would have a monthly payment of $1,678 per month.
That’s a whopping $1,656 you overpay every year that you keep this loan! As you can see Yield Spread Premium is not only something you should worry about when refinancing but should be your entire focus when refinancing. It is possible to refinance your home loan paying a flat one percent origination fee without garbage fees or Yield Spread Premium. You can learn more about doing this for yourself by registering for my free mortgage video tutorial.
If you’re considering refinancing your home loan, finding the best lender is probably at the top of your to-do list for the loan. Finding the best lender will help you get the lowest mortgage rate refinancing your loan. Here are several tips to help you get the best mortgage rate refinancing your home without paying commission based markup or junk fees.
Avoiding Commission Based Markup
If your goal for the new home loan is to get the lowest rate possible you’ll need to get a wholesale mortgage rate. The only way to get a wholesale mortgage rate is to find the right mortgage broker who is willing to give you access to wholesale rates for a reasonable fee. How do wholesale rates work? Only mortgage brokers have access to these rates; you’ll never get wholesale from bank, credit union, or broker bank.
The problem with using a mortgage broker to refinance your mortgage is that most brokers rely on commission based markup of your interest rate as a source of income. You’re already paying a perfectly reasonable origination fee for their services; why accept a higher mortgage rate just to give your mortgage broker a commission?
This commission based markup of your mortgage rate refinancing is called Yield Spread Premium and you’ll need to avoid this markup to get the lowest possible rate.
How do you get the best mortgage rate refinancing your home? Find a mortgage broker willing to work for a one percent origination fee without tacking Yield Spread Premium to your loan. These people are out there…they are typically self-employed mortgage brokers that run their own businesses without staff or posh offices. The key is to find a mortgage broker that doesn’t employ a sales staff. These brokers always split their commissions with their salespeople are will not typically negotiate over Yield Spread Premium. The same is true of a large brokerage house…the owner is always going to want their cut.
You can start your search by checking the website of the Upfront Mortgage Broker Association. (upfrontmortgagebrokers.org) Their website lists their members by Sate and all of the brokers agree to run their businesses by certain professional and ethical standards. When you contact these brokers ask them how long they’ve been originating loans. You’re looking for ten years or longer and someone that is the owner of their business. Make sure they close your loan in the name of the wholesale lender and not their own company. Brokers that close in their own companies name fund their own loans and are not required to disclose their profit margin or markup under the Real Estate Settlement Procedures Act. This is the same reason you should never refinance your home loan with a Bank or Credit Union.
When addressing Yield Spread Premium, make sure your broker will not include this in your loan and is willing to show you the rate lock confirmation from the wholesale lender. This document provided by the lender is proof that your broker is not receiving Yield Spread Premium for marking up your rate. If the broker is unwilling to provide you this document he or she is hiding the fact that Yield Spread Premium is a part of your loan and cannot be trusted. You can learn more about getting the best mortgage rate refinancing your home and expensive pitfalls to avoid by registering for my free video tutorial.