Hidden Loan Fees - Use Them To Lower your Interest Rate

by: Leslie Collins - 3/2006

You can get a lower interest rate on your mortgage loan even with BAD CREDIT if you know WHAT is negotiable in the loan. The key is knowing where the mark-up is in the loan - It's usually not obvious - but if the broker is aware that YOU know the mark up exists ( called "yield spread premium") he will compete by lowering your interest rate. First, Understand HOW a mortgage broker gets paid when completes your mortgage loan. Take a look...

Origination Fee - Not Hidden

This is an upfront fee that is disclosed on he good faith estimate Typically, there is an origination fee of anywhere from .75% to 2% of the original loan amount. So on a loan of $236,557 with a .75% origination fee, your broker makes $1747.97. Take look at this disclosed on a real Good Faith estimate This fee is not hidden at all; it's right on the good faith estimate for you to see.

Yield Spread Premium - Probably Hidden

The other not so obvious fee is called a "Yield Spread Premium. It's just a fancy term that allows the broker to make more money on the loan. You'll see how you can use this information to lower the rate you are offered - here's how it works...

Yield Spread Premium - Hidden Markup

The lender (the institution that actually FUNDS the loan) will pay the mortgage broker 1% of the loan amount for every .25% he can add to YOUR interest rate. So .25% extra on your loan = 1% commision to broker and .5%=2% etc... For example: You are offered a 6.5% interest rate on a $260,000 loan. Actually, and what the broker didn't tell you is that you actually qualify for a 6% loan. So...the broker has just added .5% to your loan( from 6% to 6.5% ) and has earned another $5200 because the lender will pay the broker .1% for every .25% increase in interest rate. Let's recap what happened here - you actually qualified with the lender for a 6% loan. The broker MARKED UP the loan by .5% - to 6.5% - this is the "yield spread premium". For this bump up in interest rate, the broker earns a nice commission from the lender. He will make $5200 for adding .5% to the original 6% loan!

What The Yield spread Premium Costs You

In this case, the diference between the 6% and 6.5% loans, creates an extra cost to YOU of about 32k from this needless mark up.

How to Call The Brokers Bluff - Let Competition Work For You

Knowing there is this hidden fee ( yield spread premium) gives you power in negotiating any loan you are offered - regardless of credit. Be forwarned, you probably won't see the YSP on the good faith estimate, but you know it's there. So what action can you take? Get 3 or 4 qoutes and tell the brokers you want to eliminate the YSP from the loan. By simply telling the broker you will compare loans and you are aware of YSP, should get the point across they are dealing with an informed borrower. Just let them know in order to get your business you'll only tolerate being charged the 1% origination fee. Get 3 good faith esitimates as a weapon and bargaining tool.

Take Quick Action - Survey 3 Lenders

Contact 2-3 online lenders and ask them to give you a rate estimate. Ask them what their origination fee is - if they say thay have none they probably get paid heavily via a yield spread premium. The best advice is always SHOP LOANS. Competition plus borrower knowledge is a great equalizer in getting the best interest rate - even with BAD CREDIT!

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