How to Refinance with the Lowest Mortgage Rate

By Louie Latour

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. Did you know that the rate quotes you receive when shopping for a new loan all include commission based markup? Homeowners who learn to recognize this unnecessary markup of their mortgage rate can save thousands of dollars on their mortgage every year. Here are several tips to help you get the best refinancing mortgage rate for your next home loan.

Why Are Mortgage Rates Marked Up?

You may be required to pay an origination fee to the company or mortgage broker that arranges your new home loan. The lender that approves your loan also pays a fee to this company or broker for closing your mortgage with higher than market interest rates. This fee paid to the broker for overcharging you is called Yield Spread Premium; homeowners who learn how to avoid Yield Spread Premium can save thousands of dollars every year by taking advantage of wholesale rates.

Yield Spread Premium And Your Mortgage

To illustrate the commission based markup known as Yield Spread Premium here is one example. You need to borrow $250,000 to refinance your existing home loan and the broker agrees to charge you a one percent fee. You close with a 6.75% mortgage rate and pay $2,500 to the broker for loan origination. What you don't know is that the lender actually approved you at 6.0% and the broker marked it up for the commission. In this example the lender pays your broker a $7500 bonus for overcharging you on top of the $2,500 you'll pay at closing.

Yield Spread Premium Raises Your Monthly Payments

You might wonder if arguing over .75% of your mortgage rate is worth the trouble. In the example above you qualified for a six percent mortgage rate; however the broker marked it up to 6.75%. On a conventional 30 year mortgage your monthly payment at 6.0% would be $1,498. If you agree to the higher mortgage rate that includes commission based markup your payment would go up to $1,621 per month. This is $1,476 per year that you'll pay extra; almost an entire mortgage payment extra because your broker took advantage of you.

Yield Spread Premium Can Be Avoided

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. It is possible to refinance your home with a wholesale rate and only pay one percent to the broker. You can learn more about doing this yourself without paying lender junk fees.

RefiAdvisor specializes in showing homeowners how to get the best mortgage rate when refinancing. Before you refinance your home, make sure you check Louie Latour's excellent free video guide to getting the best refinancing mortgage rate here.

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