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Yield Spread Premium is one of the least known, yet expensive mistakes homeowners make when refinancing a mortgage loan. Most homeowners have never heard of Yield Spread Premium, and if you agree to pay this markup of your mortgage interest rate when refinancing you will spend thousands of dollars unnecessarily.

So what is Yield Spread Premium? Assuming that you are not refinancing with a Bank (we’ll talk about Bank originated mortgages later), Yield Spread Premium is the markup of your mortgage interest rate by the person originating your loan for a higher commission. Here’s how this markup works.

Mortgage loans are retail products; with the exception of bank originated mortgage loans there is always a wholesale lender behind your mortgage. When this wholesale mortgage lender approved you for mortgage refinancing, you are approved for a specific wholesale mortgage interest rate. This rate was provided to your loan originator, be it your mortgage company or broker. This person marks up the interest rate you were approved because the wholesale lender pays them a bonus for charging you more.

That’s right, for every quarter point you agree to pay over the mortgage rate you qualified, this person receives a bonus of one percent of your loan amount. This bonus is in addition to the fees you’re already paying for the application and loan origination. If you unknowingly agree to pay this markup you are effectively paying this person double for the work they do in addition to overpaying thousands of dollars for your new mortgage.

What about Bank mortgage loans?

There’s no wholesale lender with a Bank, aren’t you better of refinancing your mortgage through your Bank? While it’s true that Bank originated mortgages are a convenient way to refinance your mortgage, Bank loans are not exempt from mortgage yield spread. When a Bank marks up the wholesale mortgage rate you would have qualified it simply has a different name. Banks mark up mortgage interest rates to boost their profit when your loan is sold to investors on the secondary market. When this markup is done by a bank it is called Service Release Premium and due to a loophole in the Real Estate Settlement Procedures Act, the Bank is not required to disclose that they are marking up your mortgage interest rate. It is because of this loophole that you should never refinance your mortgage with a Bank.

I. Loan to Value Ratio (LTV)

Your loan to value ratio is determined by dividing the amount of the mortgage you are requesting by the appraised value of your home. Suppose you are borrowing 100,000 to refinance your home appraised at $175,000; your loan to value ratio (LTV) in this case ($100,000 / $175,000 x 100) is 57%. The lower your loan to value ratio, the better your mortgage interest rate will be. If your LTV is above 80% you will have a harder time qualifying and will pay a higher mortgage interest rate.

II. Yield Spread Premium (YSP)

Yield Spread Premium is the number one culprit when it comes to homeowners overpaying for their mortgage loans. This hidden markup of your mortgage interest rate results in spending thousands of dollars unnecessarily. Your mortgage interest rate is marked up by the person originating your loan because the wholesale lender pays them a bonus of 1% of your loan amount for every quarter percent they get you to pay over the interest rate you were approved. Fortunately, there are ways to recognize and avoid Yield Spread Premium when mortgage refinancing. To learn more about avoiding this unnecessary markup of your mortgage interest rate, register for the free video tutorial available on this site.

III. Debt to Income Ratio (DIR)

Your debt to income ratio is important factor in determining the mortgage interest rate you will qualify. To calculate your debt to income ratio, simply divide your monthly bills by your total gross income for the month. Mortgage lenders like to see this around 50%; however some lenders will go higher with a premium mortgage rate. The lower your debt to income ratio, the better off you will be. Before applying to refinance your mortgage you should focus on paying down the balances on credit cards and making all of your payments on time. This will improve not only your qualifying ratios, but your raise your credit score as well.

If you are the in the process of refinancing your home mortgage loan, doing your homework before applying for a new mortgage will help you avoid costly mistakes. There are number ways to overpay for a new mortgage loan; the most common is unknowingly paying Yield Spread Premium with your mortgage interest rate. Yield Spread Premium is the retail markup of your mortgage interest rate by the Mortgage Company or broker originating your loan.

Your Mortgage Makeover – Avoid Yield Spread Premium

Yield Spread Premium Results in paying thousands of dollars in unnecessary interest and only serves to boost the commission of your loan originator. Another garbage fee you need to be aware of when refinancing is the computerized loan origination fee charged by many mortgage sites on the Internet. This is a fee paid to these websites for collecting your contact information. One well known mortgage site charges as much as $1,300 for their part in “facilitating” your mortgage loan. You can avoid these computerized loan origination fees by carefully reading the licenses and disclosure statements found on the mortgage site before entering your contact information.

Your Mortgage Makeover – Comparison Shop with the Good Faith Estimate

Comparison shopping with the Good Faith Estimate will provide you a better picture as to which loan offer is best suited to your needs. Many people tell you to use the Annual Percentage Rate or APR when shopping for a mortgage; however, the APR does not give you enough information to make an informed decision as to which loan is best for you. You can learn more about your mortgage options, including expensive mistakes to avoid with our free mortgage makeover video tutorial.

Tags: mortgage makeover, ten minute mortgage makeover

If you’re considering refinancing your mortgage in the State of Colorado, finding the right person to originate your mortgage loan can save you thousands of dollars and many future headaches. Robert Blake is a licensed mortgage broker in the State of Colorado and is fairly outspoken against Yield Spread Premium and bank mortgage loans on his Blog “The Mortgage Insider.”

If you’ve watched the free video tutorial available on this site, you know that Yield Spread Premium is the unnecessary markup of your mortgage interest rate by the loan originator to boost their commission. This markup could be subtle, as little as a quarter percent; however, if you unknowingly agree to pay it you’ll spend thousands of dollars in unnecessary mortgage interest. As for banks, bank originated mortgage loans are just plain evil. Banks mark up their mortgage interest rates to make a profit by selling your loan on the secondary market and are not legally required to tell you that they’re doing this.

If you’re in the market for a new mortgage loan in Colorado, a good mortgage broker can be an excellent resource for securing loan offers you might not find shopping on your own. Finding an honest mortgage broker can be a difficult task as these individuals are almost always paid by commission. The mortgage that gives them the largest commission may not be the best loan for your situation; this is why it is important to do your homework before refinancing your mortgage.

So if you’re refinancing your mortgage in Colorado, check out Robert Blake’s mortgage Blog “The Mortgage Insider,” and tell him you won’t stand for Yield Spread Premium.

Tags: the mortgage insider, Colorado mortgage broker, Yield Spread Premium

Mortgage Brokers can be an excellent resource for mortgage refinancing if you find the right broker to work with. Before entering into an agreement with a broker there are several important questions you need to have answered.

The first thing you need to make clear to any potential mortgage broker is that you fully understand how Yield Spread Premium works, know how to find it in your mortgage, and simply won’t stand for it in your mortgage interest rate. If you’re new to RefiAdvisor, this site focuses on educating homeowners about the hidden markup of their mortgage interest rate that serves only to boost the commission of the individual that originated the loan.

In a nutshell, when your loan application was approved, you qualified for a specific mortgage interest rate. Your loan officer marked this rate up because the wholesale lender pays them a bonus of one percent of your mortgage amount for every quarter percent they mark up the mortgage rate. The difference between the mortgage rate you qualified and the rate you locked and closed is Yield Spread premium.

When negotiating with potential mortgage brokers the first thing you want to tell them is that you will not accept a mortgage that includes Yield Spread Premium. Tell the broker you will pay a reasonable origination fee for their services. A reasonable origination fee is 1% of your loan amount. Ask the broker to see the Good Faith Estimate before submitting your application and the rate lock from the wholesale lender once your application is accepted. You will be able to spot any Yield Spread Premium on the lock confirmation from the wholesale lender.

An honest mortgage broker will agree to these terms and you will save yourself thousands of dollars and many headaches. Lastly, when you negotiate with potential mortgage brokers try and deal with the owner of the firm in question. Loan representatives may not be able to broker a deal with these terms so it’s best to start from the top. You can learn more about refinancing your mortgage without overpaying with my free video tutorial.

The decision whether or not mortgage refinancing makes sense in your situation may be as simple as determining the break even point. Your break even point is the amount of time it will take you to realize a savings after recouping the expenses of refinancing your mortgage. The expenses you need to consider include the origination fees paid to your Mortgage Company or Broker including application fees, and all third party settlement costs you are required to pay at closing.

Make a list of these costs using the Good Faith Estimate you were provided. If you don’t have a Good Faith Estimate yet most mortgage lenders will provide you one upon request, even if you haven’t submitted your application. Next, determine how much you will save each month with a lower mortgage payment. To calculate your break even point, simply divide the sum of your costs by the amount you will save. This figure is the number of months it will take you to recoup your expenses.

Here is a simple example to illustrate the break even point. Suppose it will cost you $3,000 in origination fees and closing costs to refinance your mortgage. The lower mortgage rate results in a monthly payment that is $65 lower than your old mortgage. It will take you 46 months, just under four years before you realize a savings from refinancing the loan. Is mortgage refinancing worthwhile? The answer to this question depends on how long you plan on keeping your home and what your financial goals are for the mortgage.

If you are in the process of refinancing your mortgage loan there are a number of garbage fees you need to know about. Unknowingly paying these fees will result in paying thousands of dollars unnecessarily for your new mortgage loan. The garbage fees I am referring to pertain to the “Computerized Loan Origination Fee” charged by many mortgage websites like Lending Tree, and the Yield Spread Premium charged by nearly every mortgage company in America.

Computerized Loan Origination Fees

This is a garbage fee charged by lead generation websites that have absolutely nothing to do with mortgage loans. They put up a flashy website, advertise on television with a catchy phrase about “lenders competing” and then sell your personal information to every mortgage lender willing to pay them. If you visit the Lending Tree website for example, look carefully at the Licenses and Disclosure link found at the bottom of the page. This disclosure statement explains that if you fill out the contact form on their site you will have a fee on your Good Faith Estimate for their part in “arranging” your loan. Guess how much this fee is? This Computerized Loan Origination Fee will set you back as much as $1,300, and all you did was fill out a form on their website! There are hundreds if not thousands of these lead generation websites littering the Internet. You can protect yourself by reading the find print before giving up your personal information.

Yield Spread Premium (YSP)

YSP is the markup of your mortgage interest rate by the loan originator for a commission. This commission is in addition to any fees you pay (or overpay) for arranging your mortgage loan. Mortgage companies and brokers do this because the wholesale lender pays them a bonus of one percent of your mortgage amount for every quarter percent you pay over the interest rate you qualified. Not exactly an incentive to keep mortgage brokers honest is it? Fortunately there are ways to avoid paying retail markup of your mortgage interest rate; homeowners who negotiate with their mortgage broker to avoid paying this markup will save themselves thousands of dollars. You can learn more about avoiding Yield Spread Premium, Computerized Loan Origination fees, and other costly mistakes with our free mortgage refinancing video tutorial.

Several national banks have recently been bragging about their “no fee” mortgage loans. The problem with these “no fee” mortgage loans is simple: banks are exempt from the Real Estate Settlement Procedures Act. In 1999 the Banking Lobby had our nation’s disclosure laws changed to exclude themselves from legislation that requires mortgage lenders to disclose their profit margins. Because your Bank is not required to disclose their profit margins you will never know how much they have marked up your mortgage interest rate. If you want to avoid overpaying for your mortgage you should never take out a mortgage loan from a bank.

What can you do if you really need one of these “no fee” mortgage loans?

No fee mortgages are useful for people that don’t have the required for closing costs. The problem with most of these loans you see advertised is that the tradeoff for not paying your closing costs is a significant increase in your mortgage rate. The lender jacks up the interest rate promising that you’ll be able to refinance in three years to a much lower rate. You should know that any lender that encourages you to refinance on a regular basis is engaged in predatory lending practices.

There are ways to broker “no fee” mortgages yourself if you understand how mortgage brokers make their money. If you’re a regular reader of this column you should have a good understanding of Yield Spread Premium; however, for the casual reader I’ll give a brief introduction. Yield Spread Premium is the difference between the wholesale mortgage rate you qualified and the interest rate your loan representative locks and closes your mortgage. The wholesale lender pays your mortgage broker one percent of your loan amount for every quarter percent you pay above the rate you qualified.

Should an honest mortgage broker keep this money? You’re already paying them origination fees for their services; what if you asked them to use that money to pay your closing costs? Tell your mortgage broker that you’ll pay a .25% higher mortgage rate if they’ll credit that money from the lender to your closing costs. Sounds too good to be true? Find an honest mortgage broker and you’ll save yourself thousands of dollars doing your “no fee” mortgage this way rather than with that Bank you see bragging about their loan offerings.

If you are refinancing your home mortgage, people might tell you to comparison shop until you drop to get a good deal. The problem with this advice is that all of the loan offers you compare include Yield Spread Premium. No amount of comparison shopping will help you avoid paying this markup until you learn how to negotiate for a mortgage without it.

Yield Spread Premium is the retail markup of you mortgage interest rate to boost your loan originator’s commission. When your mortgage application is approved by the lender you qualify for a specific mortgage rate. Your loan representative knows this mortgage rate but marks it up to receive a bonus from the lender. Your loan originator receives an additional 1% of the loan amount for each .25% they markup your loan. This incentive for overcharging you is built into every mortgage loan offered in the United States.

Now that you know how mortgage companies mark up interest rates, how can you avoid paying Yield Spread Premium? Tell your loan representative that you will pay a reasonable fee for the origination of your loan, but will not pay any markup of your mortgage interest rate. Ask what the commission will be for your mortgage. If the commission is $4,000 or more you’ve most likely been placed in a high-cost mortgage for the sole purpose of boosting the loan officer’s commission. You can learn more strategies for refinancing your mortgage without paying too much with our free mortgage video tutorial.

Tags: mortgage refinancing, refinancing basics, mortgage tutorial

If you are in the process of refinancing your home mortgage, you may encounter the term “Yield Spread Premium.” This is a controversial subject being debated in Congress and pertains to the way mortgage loans are sold in the United States. That’s right, just like a kitchen appliance, what you pay for a mortgage depends on where go and who you know. You might think the mortgage you “qualify” for depends on your credit rating; while your credit score plays a role in the mortgage rate you receive, Yield Spread Premium is a significant factor.

What is Yield Spread Premium? Simply put, Yield Spread Premium is the retail markup of your mortgage interest rate by the loan originator. It doesn’t matter if your mortgage originator is a local mortgage company, a mortgage broker, an Internet lender or even a bank, every loan has the potential for Yield Spread Premium. (When this markup is charged by a Bank it’s called Service Release Premium)

Why do retail mortgage loans include this markup? Mortgage originators are paid by commission. The more expensive your mortgage loan, the larger the commission they receive. In fact, the wholesale lenders encourage mortgage retailers to overcharge homeowners by paying a bonus of one percent of the mortgage amount for every .25 percent they overcharge you. Do you think your mortgage broker is going to tell you they’re marking up your mortgage interest rate? Absolutely not, this markup will be buried deep in the disclosure statements accompanying your loan contract.

How can you avoid paying this unnecessary markup of your mortgage interest rate? Homeowners who make shopping for a mortgage without Yield Spread Premium a priority when comparing mortgage offers can qualify for wholesale mortgage rates. All it takes is a little time to learn how to talk like a mortgage insider and know the right questions to ask when applying. You can learn all this and more, including costly mistakes to avoid by registering for a free mortgage refinancing video tutorial.

Tags: Yield Spread Premium