Do You Need A Lower Interest Rate?

Many homeowners, when shopping for a lender in order to refinance their home, don’t shop the internet. If you intend to look online for a lender, there are a few things that are different than shopping for a lender in the offline world. The internet offers myriad possibilities in finding a compatible lender, but you also have to be extra careful about watching for hidden fees and issues with your interest rate.

Additionally, when obtaining your mortgage, be careful that you aren’t paying any unsubstantiated or unnecessary fees and costs; this will also save you money in the long run.

Origination fees (or points in some markets) have been around forever; these are the fees you pay to the bank or mortgage broker for writing the mortgage. These fees could be as much as three to four percent of the mortgage.

As an example, using round numbers for simplicity, if you refinance a $200,000 mortgage which costs you $6,000 in origination fees and costs. Your new payment is $1,581.58 per month for 15 years (at 5%). Your savings from your older payment are $160.63 per month; so in 37 months (just over three years) you will have recouped your costs and begin saving money.

What they didn’t tell you is that you actually qualified at 5.5%; but your mortgage broker marked up your interest rate to get a higher commission from the actual lender. The lender pays the broker a bonus, generally 1% for every .25% of extra APR — in this case, an extra 2%, while YOU are stuck paying a .5% in interest for the remainder of your loan — simply because the broker wanted a higher commission! In this case, you’d be paying almost $100 amonth more than you need to, for a total of just under $1,200 a year that you could have been spending on other things. Be careful when mortgage shopping; watch out for the Yield Spread Premium.

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