My Way Lending

How to Refinance With a Wholesale Mortgage Rate

August 30, 2007 By: Admin Category: Blogroll Post

Refinancing your mortgage loan can be a stressful time for any homeowner. No one wants to pay too much when taking out a new loan; however, most homeowners don’t fully understand how loan originators and lenders make their money. Learning how your mortgage broker is compensated for their work will not only help you avoid paying too much but show you how to refinance your home with a wholesale mortgage rate. Here are several tips to help you refinance your home with a wholesale mortgage rate.

First Things First: What is a Loan Originator?

Mortgage loans are retail products like any of the other purchase we make as consumers, and there’s always someone in the middle trying to make a buck. This “middleman” is your loan originator. This person could be a mortgage broker or a loan representative at the mortgage company arranging your loan.

Mortgage loans are funded by wholesale lenders that do not deal with the public directly. You might think that by contacting a wholesale lender you’ll get around the middleman and refinance with a wholesale interest rate; however, most wholesale lender have retail divisions and will not get a wholesale mortgage rate by tying to slip on past the middleman.

How Do You Get a Wholesale Rate?

In order to gain access to wholesale mortgage rates when refinancing you’ll need to enlist the help of a mortgage broker. There are problems you’ll need to overcome to get wholesale mortgage rates; mainly that your mortgage broker is paid by commission and a large portion of their bottom line comes from closing loans with retail mortgage rates.

What Are Retail Mortgage Rates?

Retail mortgage loans include the loan originator’s markup of your mortgage interest rate. In order to fully understand your mortgage loan you need to understand how loan originators, in this case your mortgage broker, are compensated for their work. Mortgage brokers receive their compensation from two sources. The first is by charging you an origination fee, also called origination points, for arranging your mortgage loan.

This origination fee is charged as a percentage of your mortgage amount. Remember that one “point” is one percent of your loan amount and you should never agree to pay more than one percent to the broker for loan origination. If your mortgage broker refuses to negotiate on the origination fee you should find another broker for your new mortgage loan.

The second way that your loan originator receives compensation is by marking up your mortgage interest rate which is what we are attempting to avoid. This markup of your mortgage interest rate by the loan originator is called Yield Spread Premium. According to the Secretary of Housing and Urban Development, unnecessary mortgage rate markup will cost American homeowners nearly sixteen billion dollars this year. Markup of your mortgage rate by the broker is completely unnecessary because you’re paying the broker a perfectly reasonable origination fee for their work. Not only is Yield Spread Premium unnecessary but most mortgage brokers forget to mention that they’re charging you the markup or try and explain it away. If your mortgage broker tells you not to worry about Yield Spread Premium because the fee is being paid by the lender they’re lying to you.

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