If you are in the process of refinancing your home mortgage qualifying for the lowest mortgage rate will save you a lot of money. Did you know that mortgage loans are sold as retail products just like your kitchen appliances? If you accept retail interest rates when refinancing your loan you could overpay thousands of dollars every month you keep the loan. Here are the basics you need to know about mortgage interest rates before refinancing your home loan.
Retail vs. Wholesale
When you’re talking about mortgage interest rates what's the difference between wholesale and retail? Most homeowners are unaware that mortgage companies and brokers mark up their interest rate for a commission. This markup of your mortgage interest rate is called Yield Spread Premium and is what makes mortgage rates “retail.”
Why do mortgage companies and broker mark up interest rates? Loan originators mark up your rate with Yield Spread Premium because the wholesale lender pays them a bonus for charging you above market mortgage rates. For every .25% you agree to overpay when refinancing your loan originator gets a bonus of 1.0% of your loan amount. This bonus is paid in addition to the origination fees you already paying for their services.
Yield Spread Premium in Action
Suppose you refinance your home for $300,000. Your mortgage broker tells you that you qualify for a 6.75% interest rate and charges you 1% or $3,000 for the origination fees. What your broker isn’t telling you is that the wholesale lender approved you for a mortgage rate of 6.0% and they marked it up for a bonus of $9,000. You get stuck paying retail mortgage rates and your broker pockets $12,000. Does this sound like a scam to you?
Some People Get Wholesale Mortgage Rates…You Can Too
How can you avoid paying Yield Spread Premium when refinancing your mortgage? Homeowners who learn to recognize this unnecessary markup can negotiate with potential mortgage companies and brokers to avoid paying it. You can learn more about refinancing your mortgage without paying Yield Spread Premium by registering for a free mortgage video tutorial.
