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How to Refinance With The Best Possible Mortgage Rate

Mar 16, 2008
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.

What Is Commission Based Markup?

When you refinance your home loan you'll pay an origination fee to the person arranging your loan. In addition to this fee the lender pays a commission to the broker for locking in and closing with a higher than market mortgage rate. This fee the lender pays is called Yield Spread Premium. When you learn how to avoid this markup of your mortgage rate you'll be able to take advantage of wholesale rates and save thousands of dollars each and every year you have a mortgage loan.

The Basics of Yield Spread Premium

Here's an example of Yield Spread Premium in a typical transaction. You've decided to refinance your home and need a new mortgage for $250,000. The mortgage broker locks and closes your new loan with a 6.75% interest rate and charges you an origination fee of one percent. This means you'll have to pay $2,500 at closing for the mortgage broker's work. What your mortgage broker isn't telling you is that the lender actually approved you for a 6.0% rate and they've marked it up for a commission. The lender pays your broker 3% or $7,500 for overcharging you in addition to the $2,500 you're paying.

Yield Spread Premium Raises Your Monthly Payments

You might wonder if arguing over .75% of your mortgage rate is worth the trouble. In the example above you qualified for a six percent mortgage rate; however the broker marked it up to 6.75%. On a conventional 30 year mortgage your monthly payment at 6.0% would be $1,498. If you agree to the higher mortgage rate that includes commission based markup your payment would go up to $1,621 per month. This is $1,476 per year that you'll pay extra; almost an entire mortgage payment extra because your broker took advantage of you.

Yield Spread Premium Can Be Avoided

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.
About the Author
Ready to refinance your mortgage? Don't be scammed by a dirty broker or lender - check out free, independent video tutorials on getting the best refinancing mortgage rate here.
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