Are you refinancing your mortgage and want to get the lowest mortgage rates? There are several things you should know about the rate quotes you receive before refinancing to avoid paying too much. The quotes you get from your broker and on the Internet include commission based markup that drives up your payment by hundreds of dollars each month. Here is what you need to know about this unnecessary markup to avoid paying too much for your next mortgage.

Beware Yield Spread Premium

The markup of your mortgage rate for a commission is known as Yield Spread Premium. It is simply a percent of your mortgage that is created when you lock and close your loan with above market rates. This percentage is paid to your mortgage company or broker as an incentive for overcharging you.

Yield Spread Premium in Action

Suppose you’re refinancing your home loan for $350,000 with a mortgage rate of 6.5%. The broker charges you a 1% fee for arranging you loan meaning you’ll have to pay this person $3500 at closing. What your broker isn’t telling you is that you actually qualified for a 6.0% mortgage rate and they’ve marked it up because the lender is paying them 2% or $7000 for overcharging you. You get stuck with a higher than market mortgage rate meaning you’ll pay thousands of dollars in finance charges unnecessarily.

What Does This Do To Your Payments?

If you refinanced your home with a fixed rate mortgage for 30 years at six and a half percent your mortgage payment would be around $2200. The same loan at six percent interest has a payment of around $2090. That’s a difference of $1320 per year that you’re losing every year because the broker took advantage of you!

Fortunately for you it is possible to avoid this commission based markup of your mortgage rate and keep more of your own money. You can qualify for wholesale mortgage rates and pay a flat one percent fee to the broker. All it takes is investing a few hours time doing your homework and you’ll save yourself thousands of dollars in unnecessary fees and interest.