Home Loan Refinancing Secrets

If you’re considering home loan refinancing there are several things you’ll want to know to avoid overpaying. Did you know that all of the mortgage rate quotes you get online or get from your local bank or broker include hidden markup? This is the reason almost all of your neighbors are throwing away thousands of dollars for no good reason. Here are several of my best home loan refinancing tips that blow the doors of your lender’s dirty little secret.

Home Loan Refinancing Pitfalls

Most financial gurus categorize home loan as retail products and this is somewhat true; however, you don’t have to accept retail markup of your home loan. With the exception of banks (we’ll talk about the problems with bank originated home loan refinancing in a moment) home loans come from wholesale lenders and are arranged by brokers and mortgage companies that act as retailers. At least this is what they’d like you to believe. The truth is you’re already paying that mortgage company or broke a perfectly reasonable origination fee for arranging your home loan and any markup of your interest rate when home loan refinancing to collect a commission from the lender is not only unnecessary but drives up your monthly payment by as much as $1200 a year.

How does this unnecessary markup of your interest rate work? Loan originators like your mortgage broker collect a fee known as Yield Spread Premium from lenders for locking and closing your home loan refinancing with a higher than necessary interest rate. This is the mortgage industry’s dirty little secret. Brokers and other loan originators have an incentive for overcharging you and this kickback can be quite expensive. Question your broker about Yield Spread Premium and you’ll find them on the defensive, telling you not to worry about a fee that isn’t coming out of your pocket. What your broker isn’t telling you is why the lender pays them Yield Spread Premium and what it does to your monthly payments.

The Problem That is Yield Spread Premium

The Problem with Yield Spread Premium is what this markup does to your mortgage payment. Here’s an example to illustrate my point. Suppose your home loan refinancing is for $325,000 and the broker quotes you a mortgage rate of 6.0%. You agree to pay a 1.5% loan origination fee which means you’ll pay the broker $4,875 at closing for their work. First of all, don’t get me wrong, the broker deserves to get paid for their work; however, one percent is more than reasonable in this case. In this example the origination fee should not be more than $3,250.  Where this example of home loan refinancing gets ugly is what your broker isn’t telling you about the mortgage rate. Your lender actually approved you for a 5.25% interest rate; however, the broker marked it up to six percent to collect a three percent commission from the lender.

You can learn more about wholesale home loan refinancing by checking out my free underground mortgage refinancing videos.