If you are a homeowner who is considering a new mortgage loan, refinancing can save you money if you avoid costly mistakes. One such mistake is paying Yield Spread Premium, a mistake that will cost homeowners in the United States almost sixteen billion dollars this year alone. Here are several tips recognize and avoid paying Yield Spread Premium when mortgage refinancing.
Yield Spread Premium is a percentage of your mortgage loan resulting from locking at mortgage rates that are higher than the current market rate. Suppose you re refinancing your mortgage for $200,000 and you close at 6.5%. What your loan officer isn t telling you is that the wholesale lender approved you for a 6.0% mortgage rate. The difference between the mortgage rate that you could have had and the rate you close is Yield Spread Premium. Because your loan officer overcharged you they ll pocket an additional 2% as a bonus from the lender.
Yield Spread Premium may sound confusing; however, it s better for the lender when you overpay. Mortgage lenders make most of their profits selling loans to investors on the secondary market, and loans with higher than market interest rates bring a premium profit. In the example above your loan officer pockets $4,000 for overcharging you in addition to the $2,000 you paid in origination fees. You get stuck paying thousands of dollars in unnecessary mortgage interest and the loan officer lines their pockets at your expense.
The good news is that paying Yield Spread Premium is a mistake you can avoid. Homeowners who learn to recognize Yield Spread Premium can negotiate not to pay it when mortgage refinancing. You can learn more about avoiding Yield Spread Premium and other costly mistakes when refinancing with a free video tutorial.