No one likes being ripped off when making a large, costly purchase, and home refinance should be no different. Typical homeowners do not understand how mortgage loans work and end up paying thousands more then they needed to. Here are some insider "secrets" used in the mortgage industry, which will help you when you refinance your home loan.
A Yield Spread Premium is one of the most profitable, greedy, rip offs that a mortgage lender or bank may try to pull on you. Know what is a yield spread premium? Do not worry, most homeowners do not even have clue that it exists. So then what is a Yield Spread Premium and why should I look out for it? Well simply speaking, it is a commission which would have paid to the person who is arranging your home loan.
Regardless if that person happens to be the mortgage lending company down the street, a broker you know, or a well known lender with a giant internet presence. Bank issued home loans not included, all loans will work the same. Typically, a mortgage lender or broker will charge you a "origination fee" which is their cut of the deal for arranging your home loan. These fees and costs can cost up to 5% of the cost of your home loan, if your using a greedy mortgage lender. A fee of 1% is much more practical and reasonable as well for a loan origination fee. A lot of people pay a lot more for this fee than they should.
Exposing: Yield Spread Premiums:
So how exactly does a yield spread premium work? Take this example of how a yield spread premium can easily jump up your mortgage payments by up to thousands of dollars every single year of the home loan. Say you are refinancing your home loan for $ 325,000. Your mortgage broker quoted you an interest rate of a fixed 6.75% and will charge you a loan origination cost of 2.5%. This equals out to a $ 8.125 check to the mortgage broker, and a monthly home payment of $ 2,110, after your home mortgage refinance .
What the Mortgage Brokers do not want you to know:
there is a bonus involved for the mortgage broker which could hurt you. Mortgage brokers typically receive a 1.0% bonus of your home loan total amount for every .25% in interest rates you over pay. You may have actually qualified for say a 6% mortgage interest rate and the mortgage lender has marked it up to increase their profits. Using this example, a mortgage broker would get a bonus of an additional 3% which equals out to $ 9,750 in addition to the $ 8,125 that you will be paying for the loan origination fees. The mortgage broker will make a staggering $ 17,875 for just a few hours worth of work.
If the mortgage lender would have given you the rate which you qualified for, you would be paying only $ 1,940 per month. That means you would be paying $ 2,040 in extra money every year due to a greedy lender. These extra unnecessary fees and costs associated with a home mortgage refinance can be easily avoided by doing some basic research