Are You Thinking Of Refinancing?
When shopping for a refinance mortgage lender to refinance your home, there are a number of things you should know beforehand in order to not get ripped off by a seemingly innocent-looking mortgage broker. Mortgage brokers always (almost always) mark up your interest rate in order to receive a bigger commission from the mortgage lender that they represent. If you aren’t aware of this markup you’ll be paying much more in interest than you otherwise would have to pay if you were able to avoid this “fee.”
The Real Estate Settlement Procedures Act (RESPA for short) protects you when you get a new mortgage or refinance your existing mortgage by requiring mortgage brokers to be upfront about their fees, costs and broker markup prior to writing your mortgage. The powerful banking industry lobby got this law to exclude standard banks; therefore, you have to be more diligent when shopping for a mortgage from a regular bank rather than a mortgage broker.
Banks make the majority of profit from mortgage lending by selling the mortgages to the secondary mortgage market. They maximize this profit when they write a mortgage with above-market interest rates. The bank count on the fact that most consumers are bewildered by the prospect of obtaining a new mortgage or refinancing, and therefore don’t know the going wholesale rates for mortgage loans. The best way around this is to find a mortgage broker with a good reputation — one that makes the bulk of their money on origination fees, rather than interest rate mark-ups. Then, you can find out what the local wholesale rates are for a new mortgage and a refinance (they’re generally different rates) and you can compare the broker’s rate with the bank’s rate, and see who is marking up their interest rate more.
The bank won’t tell you that their interest rates are marked up; first, it’s not in their best interest to do so, and second, most non-management bank employees aren’t aware of how much (or sometimes even whether) the bank is increasing the rates.
Keeping your term the same and lowering the interest rate is the smarter way to go. This way you’re not extending the number of months that you are paying, therefore you automatically get a reduction when your interest rate gets lowered. Be sure to factor in the costs of writing a new mortgage, so that you don’t think you’re saving money but instead paying out in upfront fees and costs.
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