If you are in the process of refinancing your mortgage loan you might be considering a bank loan to get the job done. While it’s true that bank mortgage loans are convenient, there are a number of compelling reasons for avoiding your bank all together. Here are tips to help you avoid paying too much when refinancing your mortgage loan.
I. Banks Are Exempt From RESPA
The Real Estate Settlement Procedures Act exists to protect homeowners from abusive lending practices by requiring lenders to disclose their fees and markup. Thanks to the Banking Lobby the law was changed to exclude banks from this requirement. The lobby spent millions of dollars romancing Congress to give banks an unfair advantage over their customers. Would you ever consider taking out a mortgage from a lender that doesn’t have to play by the rules?
II. Banks Markup Up Their Mortgage Rates
If you’ve been researching mortgage loans online you may have heard of Yield Spread Premium. This is the retail markup of your mortgage interest rate when you borrow from a wholesale lender. Bank loans don’t have retail markup of this type; however, they mark up mortgage rates to above-market values to boost their profits. Banks make the majority of their profits selling mortgage loans to investors on the secondary market; mortgages with above market interest rates give them a premium profit. The markup of your mortgage rate for this reason is called Service Release Premium. Because your bank is exempt from the Real Estate Settlement Procedures Act they will never disclose or admit to this markup. Fortunately for you, there is a way to spot it.
III. Bank Employees Will Swear Their Rates Aren’t Marked Up
Most bank employees have never heard of Service Release Premium and have very little knowledge about the mortgage industry as a whole. They will swear to you that the interest rate is not marked up in any way and even show you the bank’s rate sheets. These rate sheets have Service Release Premium already built in; however, you can get an idea of what the going wholesale rate is by checking the weekly yield on Fannie Mae’s website.
You can learn more about refinancing your mortgage without overpaying by registering for a free mortgage tutorial.
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