Mortgage Refinancing Information – What You Need to Know About Yield Spread Premium

So you've never heard about Yield Spread Premium? You're not alone. The HUD Secretary was recently quoted saying that Americans overpay 16 billion dollars in unnecessary mortgage interest every year. If you're unfamiliar with Yield Spread Premium and you have a mortgage loan, you're contributing to this statistic. Here are several tips to help you pay less when refinancing your mortgage.

Yield Spread Premium is the markup your mortgage company or broker adds to your mortgage interest rate, often without telling you. Taking out a mortgage loan is very similar to purchasing a car. There is a retail market where mortgages are sold to consumers, and a wholesale market that provides the loans to mortgage companies and brokers. Just like a car dealership marks up the price of your vehicle, your mortgage company marks up your loan to boost their profits.

When you qualify for a mortgage interest rate, the wholesale lender that approves your loan provides a specific interest rate to your Mortgage Company or broker. The mortgage company marks up the interest rate you qualified for because the wholesale lender pays them a bonus for every .25% you agree to overpay. For every .25% you agree to pay over the mortgage rate you qualified, the mortgage company receives a bonus of 1% of your loan amount. This incentive is built into every mortgage loan sold in America. Not much of an incentive to keep mortgage companies honest is it?

The good news is that you can avoid paying Yield Spread Premium. Homeowners who learn to recognize this unnecessary markup can negotiate with mortgage companies and brokers for loans that do not include Yield Spread Premium. To learn more about refinancing your mortgage without overpaying, register for a free mortgage tutorial.