The Biggest Mortgage Refinancing Mistake You Need to Avoid

There's a lot of bad advice on the Internet about mortgage refinancing. The majority of what you read is sales motivated and results in overpaying for your new mortgage. There is however, one little known mistake that can result in overpaying thousands of dollars every year you keep the loan. Here are several tips to help you avoid paying too much when refinancing your mortgage.

So what is this one heinous mistake that results in overpaying thousands of dollars each year for your new mortgage loan? Simply put, it is the retail markup of your mortgage interest rate. This markup has a technical name; people in financial circles call it Yield Spread Premium.

What is Yield Spread Premium? When you apply for mortgage refinancing you qualify for a specific mortgage interest rate from a wholesale lender. The loan representative that originates your loan up-sells you a mortgage interest rate that gives them the largest commission. The difference between the mortgage rate you qualified and the interest rate you close with is Yield Spread Premium.

Your mortgage rate is marked up your because wholesale lenders pay the loan originator a bonus when you overpay. For every quarter point you agree to pay beyond the mortgage rate you qualified, your loan representative receives a bonus of one percent of your loan amount. This bonus is paid in addition to the origination fees you are already paying for your loan representative's services.

Agreeing to pay Yield Spread Premium will result in overpaying thousands of dollars in unnecessary mortgage interest. The good news is that you can avoid this common mortgage refinancing mistake and qualify for the perfect mortgage. You can learn more about mortgage refinancing while avoiding costly mistakes with a free mortgage tutorial.