How to Get the Best Mortgage Rate When Refinancing

Posted by Louie Latour

March 31, 2008

by Louie Latour

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?

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.

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.

Yield Spread Premium Raises Your Monthly Payments

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.

Refinancing Your Home Without 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.

About the Author:

Louie Latour specializes in showing homeowners how to find the best lender when refinancing. Before you refinance your mortgage loan, make sure you check RefiAdvisor’s excellent free video guide to getting the best refinancing mortgage rate here.

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