If you’re looking for the best mortgage refinance company to take advantage of historically low-interest rates (the lowest they’ve been in 50 years) it might surprise you that you’re taking the wrong approach to shopping for a new home loan. Common mortgage mistakes like overpaying at closing or accepting unnecessary markup of today’s best mortgage refinance rates can cost you thousands of dollars for no good reason. Here are several of my best tips before you refi that will save you thousands of dollars on your next mortgage refi.
Best Mortgage Refinance Companies
So who is the best mortgage refinance company for your next home loan? If you take the same approach with mortgage shopping as you do shopping for kitchen appliances or a bottle of ketchup you’re going to overpay at closing, period. What many homeowners don’t know about closing costs is that the fees you pay vary wildly from one lender to the next, and they’re negotiable. Let me say that again: fees at closing are negotiable. It may seem counterintuitive that there isn’t simply one best mortgage refinance company out there; but conditions in the market change on a daily, often hourly basis.
If shopping for the best refinance company isn’t the way to go, how do find a lender that isn’t going to charge you junk fees on your refi? If you’re like me you don’t have the time, energy, or interest to learn the ins and outs of any industry yourself. That’s what’s great about mortgage brokers. They have the expertise you need and once you find a good, honest mortgage broker it’s like having a good car mechanic. You’ll go to the same person for your entire mortgage refinancing needs.
Mortgage Broker Shopping
In April of 2011 the Federal Trade Commission dropped a bombshell on the mortgage broker community with new rules on how they can be compensated for loan origination. Before the new rules went into effect your broker could get paid by charging you a loan origination fee and by taking lender paid compensation known as Yield Spread Premium for marking up the best refinance rates offered by your lender. This was a lucrative business for many brokers as they could double, even triple the commission they made originating your home loan.
Under the new rules the broker can only get paid from the origination fee on your mortgage refi or by accepting lender paid compensation from Yield Spread Premium, but not both. According to a survey by the Mortgage Banker Association after the rules went into effect the percentage of broker originated home loans dropped significantly, seeming to indicate that a large number had gotten out of the business.
The Problem With Bank Refinance Rates
In the past a significant number of brokers changed the way they do business to take advantage of a loophole in the Real Estate Settlement Procedures Act that still exists today. I imagine under the new rules any brokers that haven’t changed the way they do business to exploit this loophole will quickly do so. What loophole am I referring to? Simply put, banks are exempt and don’t have to play by the rules when it comes to your home loan.
That’s right, your bank is exempt from the Real Estate Settlement Procedures Act and can charge you an origination fee and markup your interest rate as much as they like to make a profit known as Service Release Premium when your home loan is sold to investors on the secondary market. Home loans with higher than market interest rates make the bank a premium profit, and because they’re exempt from RESPA they don’t have to disclose the markup or profit margin they’re making on your home loan.
Beware Mortgage Broker Banks
I mentioned that brokers could change the way they do business to exploit the loophole in the Real Estate Settlement Procedures Act enjoyed by your bank. If your broker funds loans with their company’s money and not selling you a home loan from a wholesale mortgage lender they are effectively operating as bank, also known as a mortgage broker bank. Broker banks are exempt from RESPA just like a bank and can happily go on charging whatever they like for loan origination plus get Service Release Premium when your loan is sold.
How can you spot a broker bank? A Your broker isn’t going to tell you they’re doing business this way; the only well to tell them is ask if they close your mortgage refi in the name of the wholesale lender or in the name of their own company. If they close mortgage refinancing in the name of their company you know they’re operating as broker bank. The only reason to do business as a mortgage broker bank is to take advantage of the loophole in RESPA to boost their profits at your expense. Run fast and far in the opposite direction from this person and their company; they’ll never get you the best mortgage refinance rates.