Understand Your Mortgage Broker When Refinancing Your Home Mortgage Loan

Understand your mortgage broker and how they make their money and you can avoid overpaying thousands of dollars in unnecessary mortgage interest. Mortgage brokers routinely mark up the mortgage interest rates their customer’s qualified to receive a kickback from the lender they represent. Homeowners who learn to recognize this markup can avoid paying too much for their mortgage interest rate. Here are several tips to help you understand your mortgage broker when refinancing your mortgage loan.

Mortgage brokers are compensated for their work with the origination fees you pay when closing on a new mortgage. Reasonable origination fees for the work the broker does are 1-1.5 of your mortgage amount. The problem comes from the wholesale mortgage lender’s incentive for overcharging you.

When your loan application is approved by the wholesale lender your mortgage broker represents, the application is approved at a specific interest rate. Your mortgage broker marks this interest rate up because the lender pays them a bonus for overcharging you. For every .25% you agree to pay over the interest rate you qualified, the broker receives an additional 1% of your loan amount. This markup of your mortgage rate by the broker is called Yield Spread Premium. If you agree to pay Yield Spread Premium you will overpay thousands of dollars every year for this mortgage interest.

How can you avoid paying Yield Spread Premium on your mortgage interest rate? Tell your mortgage broker you will not pay any retail markup of the mortgage rate. Ask to see the rate lock from the wholesale mortgage lender and compare the mortgage rate to the interest rate lock you receive from your mortgage broker. If the mortgage rates are different your broker is not being honest with you about your loan.