A good way to save money during this tough economic time is by refinancing your home loan. There are however a few things that you should know so that your situation does not get worse. There are a few common mistakes that can be costly and are easily avoidable during the refinancing process.

Be Aware: Yield Spread Premiums

Most homeowners are not aware of a Yield Spread Premium or even what it is, however most homeowner although unaware of what it is have been paying it since they purchased their home. What the Yield Spread Premium basically is, is the lenders or brokers commission they are being paid on your loan. What the lenders and brokers will do is add interest to your loan in order to get their commission.

The usual commission rate charged by most lenders or brokers is 3% of the homes total value and it is added to your monthly payment. It is rare that the lenders or brokers to inform the buyer of these charges and bury them in the loan documentation. These brokers and lenders are given bonuses for charging the highest interest rate as possible.

Refinancing at wholesale rates is possible.

Those who take the time to research the loan and actually look over the terms often find they are able to avoid these yield spread premiums and are able to avoid other costly markups on their rates. Always negotiate with possible lenders or brokers you will find most times if pushed far enough they will lower the rates. The lenders and brokers already get paid from the closing costs and fees so the yield spread premium is not necessary at all.

Knowing when to refinance is not easy to determine but it can be the best financial move you can make. By doing some research on some possible lenders or brokers and some negotiating you can easily save hundreds of dollars a month. Act now before your situation gets worse and you potentially lose your home.  

-M Petrone

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