Are You A Homeowner?
Any homeowner in the process of refinancing their home knows that one of the most important factors in deciding which loan offer to accept is the interest rate. The one thing you may not know is that the rate you’re going to likely pay and the rate that you were approved for are probably two different rates. How do I know this? Read on:
There are two underlying factors that determine whether you will get a mortgage or not, and also determine what you will pay for that mortgage. These two factors are risk and profit. Everyone asking for credit poses a risk to the lender. Some risks are better, and more manageable, than others. Your risk factor is largely determined by your credit score and payment history. (Sometimes, if you have been a long term customer of a business, they will weigh your payment history with them more than your outside credit score.)
The more of a perceived risk you are, the greater the cost of your credit will be. this is only common sense. Other factors that weigh in with risk are the type of loan you are applying for and the type of interest rate. Certain types of loans, for example, high LTV loans or loans on raw land, are inherently riskier and therefore will cost you more to obtain.
Fixed rate mortgages are more risky for the lender and will cost more than an Adjustable Rate Mortgage. Term length also factors in; a longer term is riskier (the longer you have a loan, the more likely you are to default on it).
How do you avoid the Yield Spread Premium and get a wholesale interest rate? Simple. You just have to do a bit of research and find a broker that does not mark up rates as much as this; there are not many, but they are around. It may take some digging to find them, but if you can, it is completely worth it. When shopping for a lender or broker, tell them you know that the Yield Spread Premium is unnecessary and that you don’t want to pay it. Ask them for full disclosure for all their rates and fees, and examine them very carefully. Your wallet will thank you.
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