My Way Lending

Bank of America recently announced that their no fee mortgage is now available nationwide. Are no fee mortgages simply a marketing gimmick? Before you rush over to the nearest branch there are a few things you need to know about bank originated mortgage loans.

No cost mortgage loans come with above market interest rates to cover the lender’s origination fees and sometimes closing costs. If you read the fine print on Bank of America’s offer they say traditional closing costs still apply; however you will not pay the 1% fee typically charged by the company originating your loan.

The tradeoff is that you accept a higher than market mortgage rate for your loan. Remember the saying “There is nothing new under the sun?” Mortgage lenders have been running scams like this for years only they have a different name for it. When you take out a mortgage from anywhere other than a bank this markup is called Yield Spread Premium.

Mortgage companies and brokers mark up your interest rate because wholesale lenders pay a premium for loans with above market interest rates. They do this because mortgages with above market rates bring higher profits when the loans are sold to investors on the secondary market. Banks charge customers above market rates for the same reason; the difference with a bank is that there is no wholesaler involved with the transaction, only the bank.

Another problem with bank originated mortgage loans is that banks are exempt from the Real Estate Settlement Procedures Act that required lenders to disclose their markup and profit margin on your loan. The Banking Lobby spent millions of dollars romancing Congress to have the law changed so that they’re exempt. (The Republic is beautiful thing isn’t it?) This alone should leave a bad taste in your mouth and is reason enough never to refinance your mortgage with a bank. Bank mortgage rate sheets have this markup, called Service Release Premium, built into them and this should convince you to avoid your bank altogether.

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If you are considering refinancing your mortgage there are a number of pitfalls that lead to overpaying. These problems range from not checking your credit before applying to accepting a mortgage that includes Yield Spread Premium. Here are several tips to help you avoid common mortgage mistakes.

I. Carrying Too Much Debt

One of the factors that determine your mortgage rate is your debt-to-income ratio. Lenders compare your monthly income to your monthly debt obligation to calculate a ratio; most lenders prefer that your debt ratio not be larger than 20% of your monthly income. If your debt ratio is higher than 20% you represent a greater risk for the lender and your mortgage rate will be higher. If your debts are too high the lender could simply deny your application. Before mortgage refinancing try and pay down your debts as much possible.

II. Too Low of a Credit Score

Credit scores range from 300 to 850 and the higher your credit score the better your mortgage interest rate will be. If you have poor credit it can be difficult to qualify for a reasonable mortgage loan when refinancing. Poor credit is usually anything below 600; however, you can improve your credit score by paying all of your bills on time and by paying down the balances on your credit cards.

III. Accepting a Mortgage with Yield Spread Premium

Another common problem that results in overpaying thousands of dollars is accepting a mortgage that includes Yield Spread Premium. Most homeowners have never heard of Yield Spread Premium and do not understand how their mortgage company marks up the interest rate for a profit. Mortgage companies and brokers inflate interest rates because the wholesale lender behind the loan pays them a bonus for overcharging you. Once you understand how this markup works you can negotiate when refinancing to avoid paying it and qualify for a wholesale mortgage rate.

You can learn more about refinancing your mortgage while avoiding costly mistakes with our free mortgage tutorial.

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Everyone loves a good deal and qualifying for the lowest mortgage interest rate can save you a pile of cash over the life of your mortgage loan. There are however, a number of problems that come up when refinancing online and if you’re not careful result in overpaying thousands of dollars. Here are several tips to help you qualify for the best mortgage rate while avoiding costly mistakes when refinancing your mortgage.

Check Your Credit First

One of the factors your mortgage rate is based on is your credit score. Your credit score is derived from the contents of your credit reports; everyone has three reports which are maintained by the three credit agencies of Equifax, Experian, and Trans Union. The problem with these credit reports is that they are extremely prone to errors and if you don’t check before refinancing you could be overlooking a costly error. The good news is that Congress recently passed a law requiring these credit agencies to provide you a free copy of your credit report once every year. You can request your credit report by visiting the website: http://annualcreditreport.com

Read The Fine Print Before Clicking

The next costly mistake many homeowners make is neglecting to read the fine print before entering their contact information into a form. Most mortgage websites you run across have absolutely nothing to do with mortgage loans and exist only to capture user information and sell it to mortgage lenders and brokers. The problem with many of these sites is that the fee is passed on to you the unsuspecting homeowner. This fee is called a “Computerized Loan Origination Fee” and in the case of several well know mortgage sites including Lending Tree.com could cost you as much as $1,300. You can learn more about refinancing your mortgage with our free mortgage refinancing video tutorial.

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