Mortgage Broker Refinancing - There is no Such Thing as a Good Mortgage Broker
Mortgage Brokers are simply retail vendors for wholesale mortgage companies. Your Mortgage Broker is compensated by the origination fees you pay for the new loan. Origination fees run around 1-1.5% of your loan amount and are more than ample compensation for your Mortgage Broker's services; however, Mortgage brokers mark up your mortgage interest rate to boost their profits.
The retail markup of your mortgage interest rate is called Yield Spread Premium. Your Mortgage Broker has absolutely nothing to do with qualifying you for an interest rate, although this person will claim they are getting you a fantastic deal. The interest rate you qualify is set by the wholesale lender. After evaluating the details of your application and your credit, the wholesale lender provides your Mortgage Broker with a written guarantee of that interest rate. Your Mortgage Broker turns around and gives you a separate written guarantee for a higher interest rate, all the while telling you what a great deal you are getting.
The more your Mortgage Broker marks up the interest rate, the more they are paid by the wholesale lender. Here is an example of Yield Spread Premium in action. Suppose your Mortgage Broker tells you that you've qualified for an interest rate of 6.75 when refinancing for $225,000. What your Mortgage Broker isn't telling you is that the wholesale mortgage lender qualified you for an interest rate of 6.25%. The additional .25% is going to cost you thousands of dollars in unnecessary interest, all because your Mortgage Broker lied to you.
Mortgage Brokers mark up mortgage interest rates because the wholesale lender pays them a bonus of one point for every .25% they get you to overpay. In the previous example, your Mortgage Broker received $4,500 on top of your origination fees of $3,375. Can you see how paying retail markup results in paying double for your new mortgage? How can you avoid paying Yield Spread Premium to your Mortgage Broker?
Ask to see the interest rate guarantee from the wholesale lender. Tell your Mortgage Broker that you will pay 1-1.5% in origination fees and reasonable closing costs but will not pay Yield Spread Premium. If your Mortgage Broker refuses to show you the guarantee, find another broker. You can learn more about mortgage refinancing, including costly mistakes to avoid by registering for a free mortgage tutorial.
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Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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