Are you refinancing your mortgage and want to get the lowest mortgage rates? There are several things you should know about the rate quotes you receive before refinancing to avoid paying too much. The quotes you get from your broker and on the Internet include commission based markup that drives up your payment by hundreds of dollars each month. Here is what you need to know about this unnecessary markup to avoid paying too much for your next mortgage.
Pitfalls of Yield Spread Premium
When your mortgage broker locks and closes your home loan with higher than market interest rates the spread created is called Yield Spread Premium. The broker inflates your mortgage rate to get this commission from the lender at your expense.
Yield Spread Premium in Action
Imagine you’re refinancing your home and your existing mortgage is for $350,000. Your mortgage broker quotes you a rate of 6.5%. You agree to pay a one percent origination fee for the broker’s services meaning you have to come up with $3500 at closing. What your mortgage broker hasn’t told you is that you actually qualified for a 6% mortgage rate and they’ve marked it up for a commission. You get stuck paying too much for your mortgage loan and your broker walks away with an extra $7000 from your lender.
How Does This Cost You Money?
Suppose you refinance your home with a fixed rate mortgage with a 30 year term length. The mortgage your broker told you that you qualified for at 6.5 percent would give you payment of $2,200 per month. If you got the mortgage you qualified for at 6.0% your payment would only be $2,090. That’s a savings of $1,320 per year all because your mortgage broker took advantage of your situation!
Fortunately for you it is possible to avoid this commission based markup of your mortgage rate and keep more of your own money. You can qualify for wholesale mortgage rates and pay a flat one percent fee to the broker. All it takes is investing a few hours time doing your homework and you’ll save yourself thousands of dollars in unnecessary fees and interest.
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