Your Mortgage Broker is a Used Car Salesman and a Scoundrel

Think you know an honest Mortgage Broker? Think again! The nature of the retail mortgage industry is simply to take advantage of you. How do mortgage brokers hustle you into paying more? Most homeowners never even see it coming. Here’s how your mortgage broker is ripping you off and how you can avoid it.

Mortgage Brokers are nothing more than retail vendors reselling loans for wholesale mortgage lenders. Like any other retailer on the planet, your mortgage broker wants you to pay as high a premium as possible for your new mortgage loan. You’re already paying the Mortgage Broker origination fees for this loan. The origination fees you pay are typically 1-1.5% of the loan balance and are more than ample compensation for any Mortgage Broker; however, just like any used car salesman, greed slithers into the equation.

Your Mortgage Broker receives a bonus from the wholesale lender for overcharging you. It’s true; they even have a fancy term for it. This markup is called Yield Spread Premium, and here’s how it works. When you apply for a mortgage loan using a Mortgage Broker, the wholesale lender will evaluate your application and qualifies you for a specific interest rate. The wholesale lender provides your Mortgage Broker with a written guarantee of that interest rate. Now that your broker knows the interest rate you’ve qualified for, the hustle begins.

Just like a used car salesman sizing you up to overcharge you for an automobile, your mortgage broker sizes you up based on how knowledgeable or clueless they think you are. The Mortgage Broker writes you a separate interest rate guarantee on fancy company letterhead and starts a flea market pitch about what a great deal you’re getting. Think the interest rate the wholesale lender qualified you and the one your Mortgage Broker pitched you are the same? If you said “No,” give yourself a gold star!

Based on how much the Mortgage Broker thinks you will overpay, that person marked up your interest rate. Mortgage Brokers do this because the wholesale lender pays them a commission for overcharging you. Suppose the wholesale lender qualified you for a 6.0% fixed interest rate mortgage of $225,000. The broker pitched you 6.75%, and you agreed to the loan. Your mortgage broker overcharged you .75% on the interest rate; what’s .75% between friends you ask? This .75% amounts to your paying thousands of dollars in unnecessary interest, and that’s just in the early years of the loan.

What you don’t know is that the wholesale lender rewards your mortgage broker for hustling you on your new mortgage. For every .25% the Mortgage Broker overcharges you, the wholesale lender rewards them with a bonus of one point, or 1% of your loan amount. In the example above the broker overcharged you .75% on your interest rate and receives three points, or 3% of your $225,000. For ripping you off that Mortgage Broker receives $6,750 as a bonus from the lender! Still think Mortgage Brokers have a noble profession? The bad news for homeowners is that mortgage companies and banks do the same thing to their borrowers.

Because the Mortgage Broker already receives the origination fee for your new mortgage, Yield Spread Premium effectively doubles your costs for mortgage refinancing. Want to know how you can avoid paying double when mortgage refinancing? Homeowners that learn to recognize Yield Spread Premium markup in their mortgage loans can avoid paying it. To learn more about mortgage refinancing without overpaying including common homeowner mistakes to avoid, register for a free mortgage guidebook.

To get your free mortgage guidebook visit RefiAdvisor.com using the link below.

Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.