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Did you know refinancing your mortgage is just like car buying? Most homeowners don’t know that mortgages are retail products like cars; suggested retail value is not what you want to pay when buying a car or refinancing your mortgage. Here are several tips to help you pay less when refinancing your mortgage with a wholesale interest rate.

Do you know what makes mortgage loans “retail?” Retail mortgage loans have interest rates that have been marked up by the loan originator for a commission. Your loan originator is the person responsible for putting your loan together; this person could be a mortgage broker or a representative at your local mortgage company. Loan originators mark up interest rates because the wholesale lender pays them a bonus for overcharging you. When you close on a new mortgage with an above market interest rate the wholesale lender pays a bonus of one percent for every quarter percent you overpay.

The difference between the interest rate your wholesale lender approves you and the mortgage rate you close with is called Yield Spread Premium. According to the Secretary of Housing and Urban Development Yield Spread Premium will cost homeowners sixteen billion dollars in unnecessary finance charges this year alone. The good news is that you can refinance your mortgage with a wholesale interest rate and avoid paying Yield Spread Premium altogether.

Homeowners who learn to recognize Yield Spread Premium on the Good Faith Estimate and HUD-1 statement can negotiate to find loan originators that won’t charge this unnecessary markup.

You’re already paying origination fees for the broker’s part in arranging your loan; if you agree to Yield Spread Premium you’re paying this person double, even triple they do. You can learn more about refinancing your mortgage without paying too much with our free mortgage toolkit.

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If you are a Colorado home owner considering a new mortgage loan, there are several steps you can take to avoid paying too much when refinancing. Comparison shopping mortgage offers will only get you so far unless you know how to negotiate for wholesale mortgage rates. Here are several tips to help you refinance your Colorado home mortgage with the lowest rate possible for your situation.

Many homeowners start their search for a new mortgage by typing Colorado Home Mortgage Refinance Loan into a search engine. This search would return a number of websites promising mortgage quotes with low interest rates. The problem with these “Colorado Home Mortgage Refinance Loan” quotes is that they include retail mortgage rates that have markup intended to give the loan originator a fat commission check.

So what makes a mortgage loan “retail?” Retail mortgages include markup known as Yield Spread Premium. This markup is the difference between the wholesale interest rate the lender approved your loan and the mortgage rate you closed with. Mortgage companies and brokers mark up interest rates because wholesale lenders pay them a bonus for closing mortgage loans with above market interest rates. For every quarter percent you agree to overpay your loan originator pockets one percent of your mortgage amount.

Here’s an example of how retail mortgage interest rates work. Suppose you refinance your Colorado home mortgage for $250,000 for 30 years at 6.75% interest rate. Your mortgage broker charges you an origination fee of one percent and tells you what a fabulous deal you’re getting. (Sound familiar?) What your broker isn’t telling you is that the wholesale lender approved you for a 6.25% mortgage rate and they’ve marked it up to 6.75% for a commission.

In the previous example the mortgage broker pockets your origination fee of $2,500 plus $5,000 from the lender for a total of $7,500. You’re stuck with an above market interest rate that you didn’t have to pay. Don’t let this scenario happen with your Colorado home mortgage refinance loan; by learning how to recognize Yield Spread Premium you will keep the wholesale mortgage rate your lender approves you. You can learn more about refinancing without overpaying by requesting our free mortgagee toolkit using the link at the top of this page.

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