How to Refinance With The Lowest Mortgage Rate

Published by Chris | Filed under Personal-Finance

If you are in the process of refinancing your home mortgage loan, finding the best lender and the lowest refinancing mortgage rate can be an intimidating process. Did you know that the rate quotes you receive when shopping for a new loan all include commission based markup? Homeowners who learn to recognize this unnecessary markup of their mortgage rate can save thousands of dollars on their mortgage every year. Here are several tips to help you get the best refinancing mortgage rate for your next home loan.

How is Your Mortgage Rate Marked Up?

The mortgage company or broker arranging your loan charges you an origination fee for their part in setting up your mortgage. On top of this fee the lender pays them a commission for locking and closing loans with above market mortgage rates. This fee paid by the lender is called Yield Spread Premium. Learn how to avoid it and you can save thousands of dollars every year you have a mortgage loan.

Yield Spread Premium And Your Mortgage

Here’s one scenario to illustrate Yield Spread Premium at work. Suppose you’re refinancing your home for $250,000. Your mortgage broker quotes you a rate of 6.75 percent and charges you a one percent fee. In this example the fee your broker charges is $2,500 which is a reasonable amount to pay. The problem with this loan is what your broker isn’t telling you. The mortgage rate your lender approved you is 6.0 percent and the broker has marked it up to 6.75 percent to get a 3 percent commission from the lender. This kickback from the lender is $7,500 on top of the $2,500 you’re already paying.

How Yield Spread Premium Affects Your Mortgage Payment

Is .75% of your mortgage rate worth worrying about? In the previous example if you refinanced with the rate you qualified at six percent your payment would $1,498 per month. Had you agreed to the mortgage rate that includes Yield Spread Premium your mortgage payment would be $1,621 per month at 6.75%. This adds up to $1,476 per year that you’ll pay to give your mortgage broker a bonus.

You Can Avoid Yield Spread Premium

Learn to recognize Yield Spread Premium and you can take advantage of wholesale mortgage rates and save thousands of dollars every year. You can refinance and pay the broker a one percent origination fee without Yield Spread Premium if you know how to go about it. You can lean more about wholesale rates and recognizing and avoiding lender junk fees.

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