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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.

Watch Out For Yield Spread Premium

When your mortgage broker locks and closes your home loan with higher than market interest rates the spread created is called Yield Spread Premium. The broker inflates your mortgage rate to get this commission from the lender at your expense.

Yield Spread Premium in a Typical Mortgage Loan

Imagine you’re refinancing your home and your existing mortgage is for $350,000. Your mortgage broker quotes you a rate of 6.5%. You agree to pay a one percent origination fee for the broker’s services meaning you have to come up with $3500 at closing. What your mortgage broker hasn’t told you is that you actually qualified for a 6% mortgage rate and they’ve marked it up for a commission. You get stuck paying too much for your mortgage loan and your broker walks away with an extra $7000 from your lender.

How Does This Cost You Money?

If you choose a fixed rate loan with a term length of 30 years at 6.5 percent your monthly payment will be $2,200. The same mortgage with a 6% rate would have a payment of only $2,090. Falling for this mortgage broker trick will cost you $1,320 every year you keep this loan; all because your broker lied to you!

It is possible for homeowners who understand Yield Spread Premium to avoid this unnecessary markup and refinance with a wholesale mortgage rate. When you do this it is only necessary to pay a one percent origination fee to the broker. You can do this for yourself by investing a few hours doing your homework and can save yourself thousands of dollars in the process.