If you are considering mortgage refinancing with a mortgage broker, there are a number of things you need to know before signing an agreement. Mortgage brokers can be an excellent resource for finding competitive mortgage refinancing offers; however, you need to be careful to avoid overpaying for the mortgage broker’s services. Here are several tips to help you avoid costly mortgage refinancing mistakes when working with a mortgage broker.

Mortgage Refinancing: What Are Mortgage Brokers?

Mortgage brokers are a third party retail outlet for securing mortgage refinancing loans. When mortgage refinancing it is important to understand the how the retail mortgage market works. With the exception of banks and broker-banks (which you should avoid altogether) the retail mortgage market is made up of mortgage companies, online web portals, and mortgage brokers. These retail outlets all work basically the same; mortgage brokers sell mortgages for wholesale mortgage lenders for a commission.

Mortgage Refinancing: How Do Mortgage Brokers Operate?

When you apply for a mortgage loan from a mortgage broker the wholesale lender qualifies you for a certain interest rate and provides the mortgage broker with a written guarantee of that interest rate. The mortgage broker will turn around and reissue the mortgage refinancing interest rate guarantee in their company’s name. Do you think the guarantee you receive is the same as the one that came from the wholesale lender? If you said “No!” give yourself a gold star. Mortgage brokers always mark up the interest rate the wholesale lender qualified you for. The wholesale mortgage refinancing lender may have qualified you for a 6.0% loan; however, the mortgage broker marked it up to 6.75% on your interest rate guarantee.

Mortgage Refinancing: What is Mortgage Broker Yield Spread Premium?

The markup your mortgage broker slips into your interest rate when mortgage refinancing is called Yield Spread Premium. Mortgage brokers are compensated with the origination points or fees you pay for mortgage refinancing. Yield Spread Premium is the icing on the cake for many retail mortgage outlets like mortgage brokers. By overcharging you for the interest rate, the mortgage broker receives an additional point for each .25% they mark up on the loan as a bonus from the wholesale lender. In the case above where the wholesale lender qualified you for a 6% loan and your mortgage broker marked up the interest rate to 6.75%, that broker will receive three additional points as a bonus for ripping you off.

Suppose your mortgage refinancing loan was for $200,000, the mortgage broker would receive a $6,000 bonus for overcharging you. The overwhelming majority of homeowners never know they’ve been ripped off in this manner by the mortgage broker. How can you avoid paying this mortgage broker markup when mortgage refinancing? Homeowners that learn to recognize Yield Spread Premium can avoid paying the markup. To learn how you can avoid paying mortgage broker markup when refinancing your mortgage, register for a free mortgage refinancing guidebook.

If you are considering mortgage refinancing, comparison shopping for the best loan will save you thousands of dollars. Researching mortgage lenders and their offers has the added benefit of allowing you to avoid many common mortgage refinancing mistakes. Here are several things to look for when comparing mortgage offers.

When comparing mortgage refinancing offers, make sure you scratch your bank off the list of lenders you consider. Banks are able to exploit loopholes in the Real Estate Settlement Procedures Act that protects homeowners in the United States from predatory lenders. If you take out a mortgage refinancing loan from your bank you will overpay for the financing.

I. Start With the Annual Percentage Rate When Mortgage Refinancing

When comparison shopping for a new mortgage the lender’s Annual Percentage Rate (APR) is a good starting point for your comparison. The Annual Percentage Rate factors in the base interest rate, required points, and lender or broker fees as a yearly percentage rate. The lower this Annual Percentage Rate is, the lower your mortgage refinancing costs will be. The Annual Percentage Rate does not include all fees or closing costs and should not be used solely as the basis for your decision.

II. Mortgage Refinancing Points and Lender Fees

Pay close attention to the number of points the lender is requiring you to pay in order to qualify for mortgage refinancing. Points are fee you pay the lender at closing in exchange for something, and one point equals 1% of the amount you are borrowing. Not all lenders will require points as a condition of qualifying for mortgage refinancing; however, you can use points as part of negotiating for a lower
interest rates or better conditions for the new loan.

III. Mortgage Refinancing Term Length

The mortgage refinancing term length you choose is the amount of time the mortgage lender gives you repay the loan. The amount of your monthly payment is based on the interest rate the mortgage refinancing lender qualifies you and the term length you choose. The longer your mortgage term the lower your payment will be. The opposite is also true; if you choose a mortgage with a shorter term you will have a larger monthly payment. Shorter term lengths have the advantage of building equity in your home at a faster rate and are a popular choice for mortgage refinancing.

IV. Mortgage Refinancing Prepayment Penalties

Mortgage Refinancing prepayment penalties are a fee lenders include in the loan contract to discourage homeowners from refinancing the loan. Many lenders charge a steep penalty; you will want to carefully review your current loan contract to be sure it doesn’t include this penalty. Never accept a loan with a prepayment penalty when mortgage refinancing. If the lender includes a penalty with the loan you are considering and will not negotiate to remove it, consider mortgage refinancing with another lender.
You can learn more about comparison shopping for the best mortgage, including costly mistakes to avoid by registering for a free mortgage guidebook.

Source: Ezinearticles

If you are in the process of refinancing your home loan you might consider using a mortgage refinancing broker to help you find the best loan offer. Mortgage brokers are an excellent resource for locating competitive mortgage refinancing offers as long as you understand how retail mortgage loans work. Brokers often significantly mark up the interest rates on loan offers; if you are able to recognize this markup you can easily avoid paying it. Here are several tips to save you money when mortgage refinancing with a broker.

The Mortgage Refinancing Market

The retail mortgage market is made up of mortgage companies and brokers that refer borrowers to wholesale lenders for a commission. There are also banks and broker- banks that write their own mortgages; however, due to loopholes in mortgage refinancing disclosure laws that protect homeowners in the United States, you should never refinance your mortgage with a bank or broker-bank. For the purpose of this discussion we will focus on mortgage refinancing with mortgage brokers which act as third party vendors for wholesale mortgage lenders.

Mortgage Refinancing With a Broker

Mortgage brokers that do not close on home loans in their own names are excellent time-saving resources for mortgage refinancing. This is especially true for special needs borrowers, like homeowners with poor credit. The first question you should ask every broker you consider is “Do you close on the loan in your own name?” If the answer to this question is “Yes” or the mortgage refinancing broker refuses to answer, you know that you are dealing with a broker-bank and should scratch this person off your list. Never refinance your mortgage with a bank or a bank pretending to be a mortgage broker.

What to Tell Your Broker When Mortgage Refinancing

When you have found a broker that you are certain is not a bank masquerading as a mortgage broker, tell the broker you will pay mortgage refinancing origination fees and closing costs, but will not pay Yield Spread Premium (YSP) of any kind. YSP is the markup mortgage brokers tack onto the interest rate your wholesale mortgage refinancing lender qualified you for. Mortgage brokers do this to receive an additional bonus for overcharging you.

Additional Resources for Mortgage Refinancing Information

You can learn more about mortgage refinancing with a broker, including common mistakes to avoid by registering for a free mortgage refinancing guidebook.

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