How to Refinance With The Lowest Mortgage Rate
Are you thinking about refinancing your home loan but aren’t sure how to get the best mortgage rate? Choosing a lender to refinance can be a confusing process and if you pick the wrong person to arrange your loan you could pay thousands of dollars too much every year. The reason this happens is that your mortgage company or broker adds commission based markup to your mortgage rate. Homeowners who learn to recognize this markup can save themselves thousands of dollars every year. Here are several tips you can use to get the best mortgage rate when refinancing your mortgage.
How is Your Mortgage Rate Marked Up?
You may be required to pay an origination fee to the company or mortgage broker that arranges your new home loan. The lender that approves your loan also pays a fee to this company or broker for closing your mortgage with higher than market interest rates. This fee paid to the broker for overcharging you is called Yield Spread Premium; homeowners who learn how to avoid Yield Spread Premium can save thousands of dollars every year by taking advantage of wholesale rates.
The Basics of Yield Spread Premium
To illustrate the commission based markup known as Yield Spread Premium here is one example. You need to borrow $250,000 to refinance your existing home loan and the broker agrees to charge you a one percent fee. You close with a 6.75% mortgage rate and pay $2,500 to the broker for loan origination. What you don’t know is that the lender actually approved you at 6.0% and the broker marked it up for the commission. In this example the lender pays your broker a $7500 bonus for overcharging you on top of the $2,500 you’ll pay at closing.
Yield Spread Premium Raises Your Monthly Payments
You might wonder if arguing over .75% of your mortgage rate is worth the trouble. In the example above you qualified for a six percent mortgage rate; however the broker marked it up to 6.75%. On a conventional 30 year mortgage your monthly payment at 6.0% would be $1,498. If you agree to the higher mortgage rate that includes commission based markup your payment would go up to $1,621 per month. This is $1,476 per year that you’ll pay extra; almost an entire mortgage payment extra because your broker took advantage of you.
Refinancing Your Home Without Yield Spread Premium
Homeowners who learn to recognize this commission based markup of their mortgage rates can refinance with a wholesale mortgage rate and save thousands of dollars in finance charges. It is possible to refinance your home with a wholesale rate and only pay one percent to the broker. You can learn more about doing this yourself without paying lender junk fees.
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