If you’re considering a new mortgage to refinancing your existing home loan, choosing the right lender with the lowest rate can be a confusing process. If you choose the wrong person to arrange your mortgage you could be paying thousands of dollars unnecessarily to give that person a bonus. Homeowners who understand how commission based markup works can save themselves thousands of dollars on their home loans. Here is a discussion to help you find the best mortgage rate when refinancing your home loan.
What Is Commission Based Markup?
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
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.
How Does Yield Spread Premium Raise Your Payments?
You might say .75 percent isn’t that much, what’s the big deal? In the previous example if you refinance with the 6.0 percent rate that you deserve your monthly payment on a 30 year mortgage would be $1,498 per month. If you agree to a 6.75 percent mortgage rate your monthly payment balloons to $1,621 per month! That’s $1,476 you’ll pay unnecessarily every year because your mortgage broker lied to you.
You Can Avoid Yield Spread Premium
If you learn how to recognize this unnecessary markup of your mortgage interest rate you’ll save thousands of dollars every year on every mortgage you have. You can refinance your home loan paying the broker a one percent fee with a wholesale mortgage rate. You can learn more about refinancing with a wholesale rate without paying lender junk fees.