Mortgage Refinancing: How To Refinance Without Overpaying

Mortgage Refinancing: How To Refinance Without Overpaying

Author: Louie Latour

No one wants to overpay for their mortgage when refinancing; however, most people overpay and aren’t even aware they’ve done it. Many homeowners know enough about mortgage refinancing to shop around and compare costs. These homeowners overpay not due to closing costs, but because of retail markup. How can you avoid paying too much for your next mortgage? Here are several tips to help you avoid unnecessary markup of your mortgage interest rate.

Most of the advice you receive regarding mortgage refinancing involves comparison shopping for the best loan. While comparison shopping is all well and good, it is not going to help you when it comes to retail markup. Only homeowners that understand how retail mortgage loans work can avoid paying markup of their mortgage interest rates. Here is how the retail mortgage market works.

With the exception of banks, mortgage companies and brokers are simply vendors reselling mortgage loans for wholesale lenders. Much in the way your appliance store resells a washing machine, your mortgage company peddles loans for a profit. The appliance store makes money by marking up the price of the washing machine; your mortgage company has a similar strategy to boost their profits. Because you are already paying the origination fee, your mortgage company or broker is in fact taking advantage of you to make a lot of money. Here’s how they do it.

When you are approved for a mortgage the wholesale lender qualifies you for a certain mortgage rate. This interest rate guarantee you receive is not from the wholesale lender that approved your loan, it comes from your mortgage company. The interest rate you receive is not the one you qualified for; your mortgage company has marked it up to make an additional profit from the wholesale lender. In fact, the wholesale lender encourages your mortgage company to overcharge you, and pays a bonus for each quarter point more you agree to pay.

Suppose for example, you are refinancing your home for $175,000. The wholesale lender qualified you for a 6.0% interest rate; however, your mortgage company lied to you and said you’ve qualified for 6.75%. You agree to the loan and the mortgage company receives 3% of your loan balance as a reward for lying to you. That’s $5,250 in addition to the $2,625 you had to pay in origination fees. Can you see how you have overpaid significantly for this loan? The additional .75% you paid will amount to thousands of dollars in unnecessary interest in the early years alone. This markup of your interest rate is called Yield Spread Premium and there is a way to avoid paying it.

You can learn more about refinancing your mortgage with overpaying by registering for a free mortgage guidebook.

To get your free mortgage guidebook visit RefiAdvisor.com using the link below.

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.

Claim your free mortgage refinance information guide today at: http://www.refiadvisor.com

Mortgage Refinance Information