Why Are Mortgage Rates Marked Up

Category: Finance.

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. Homeowners who learn to recognize this unnecessary markup of their mortgage rate can save thousands of dollars on their mortgage every year.

Did you know that the rate quotes you receive when shopping for a new loan all include commission based markup? Here are several tips to help you get the best refinancing mortgage rate for your next home loan. The mortgage company or broker arranging your loan charges you an origination fee for their part in setting up your mortgage. Why Are Mortgage Rates Marked Up? On top of this fee the lender pays them a commission for locking and closing loans with above market mortgage rates. Learn how to avoid it and you can save thousands of dollars every year you have a mortgage loan. This fee paid by the lender is called Yield Spread Premium.

How Yield Spread Premium Works. Suppose you re refinancing your home for$ 250, 00Your mortgage broker quotes you a rate of 75 percent and charges you a one percent fee. Here s one scenario to illustrate Yield Spread Premium at work. In this example the fee your broker charges is$ 2, 500 which is a reasonable amount to pay. The mortgage rate your lender approved you is 0 percent and the broker has marked it up to 75 percent to get a 3 percent commission from the lender. The problem with this loan is what your broker isn t telling you.

This kickback from the lender is$ 7, 500 on top of the$ 2, 500 you re already paying. Is. 75% of your mortgage rate worth worrying about? How Does Yield Spread Premium Raise Your Payments? In the previous example if you refinanced with the rate you qualified at six percent your payment would$ 1, 498 per month. This adds up to$ 1, 476 per year that you ll pay to give your mortgage broker a bonus. Had you agreed to the mortgage rate that includes Yield Spread Premium your mortgage payment would be$ 1, 621 per month at 75% .

You Can Avoid Yield Spread Premium. It is possible to refinance your home with a wholesale rate and only pay one percent to the broker. Homeowners who learn to recognize this commission based markup of their mortgage rates can refinance with a wholesale mortgage rate and save thousands of dollars in finance charges. You can learn more about doing this yourself without paying lender junk fees.

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