Mortgage Refinancing: Understanding Mortgage Jargon Will Save You Money

May 27, 2010 - PRLog -- If you are considering mortgage refinancing for any reason, doing your homework and learning the lingo will save you thousands of dollars. Much like used car salesman, mortgage companies and brokers inflate their interest rates based on how knowledgeable they perceive you to be. Understanding how retail mortgage markup works and using the lingo correctly will help you avoid overpaying for your new mortgage. Here are several tips to help outsmart your mortgage company or broker to avoid paying too much when mortgage refinancing.

Mortgage refinancing can be an overwhelming process for any homeowner. Not only are you bombarded with terminology, you have to worry about being taken advantage of by your mortgage company or broker. Mortgages are commodity products just like used cars. Just like purchasing a used car, when you take out a mortgage loan there is always someone trying to make a buck by overcharging you. The problem is instead of a buck, this person will make thousands of dollars at your expense, if you let them.

The most important term you need to learn before mortgage refinancing is Yield Spread Premium or YSP. When a mortgage retailer (all mortgage companies and broker are retail vendors for wholesale mortgage lenders except for banks) gives you a written guarantee for a mortgage interest rate, this written guarantee includes retail markup, or YSP. Here's how Yield Spread Premium works.

When you apply for a mortgage loan with your retail mortgage company or broker, the wholesale lender will qualify you for a specific mortgage interest rate. The retail mortgage company will provide you a separate written guarantee with their company for a higher interest rate..

Why do mortgage companies inflate your interest rate? Just like used car salesman, the more they can overcharge you for the new mortgage, the higher their commission will be from the wholesale lender. Here's an example how YSP works. Suppose the mortgage broker quoted you an interest rate of 6.5%. What you don't know is that the wholesale mortgage lender qualified you for 6.0% and the broker marked up your interest rate .5%. For each .25% the broker overcharged you, that person receives 1 point as a bonus from the lender. One point is the equivalent of 1% of your loan amount. If you borrow $200,000 for mortgage refinancing, that broker receives your origination fees plus a $4,000 for ripping you off.


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