Mortgage lenders and brokers all have the same bag-of-tricks when it comes to overcharging you for your home loan. Here are how the scams work and what you can do to avoid paying to much when refinancing your home loan.
When you apply for a mortgage loan nearly every loan you consider is marked up at least 2-3 points for the originator. One point is equal to one percent of the loan amount. For example, if your mortgage is for $100,000, one point would equal $1,000. Your lender will disclose only what you pay in the form of “Origination Points,” “Discount Points,” or broker fees.
Most mortgage loans have origination fees of one point. What the originator isn’t telling you is their mark up or profit from your mortgage. They will typically receive 1 or 2 more points on top of this, often doubling their profits. This slight of hand is common practice in the industry and is in violation of the RESPA laws that protect borrowers. The person or company originating your loan is receiving a bonus for overcharging you for your home loan.
If you are dealing with a mortgage broker or e-lender, they will often receive an additional bonus of one point for every .25% they can raise your interest rate. This also happens with mortgage companies that don’t represent themselves as brokers. Here is an example of this scam in action:
Suppose you want to borrow $200,000 to refinance your home. The loan originator, (an online e-mortgage site in this case) is telling you that you only have to pay one origination point or $2,000. This seems fair because of the limited comparison shopping you have already conducted. The catch is your e-mortgage website quotes you an interest rate that is .5% higher than you actually qualify for. The loan originator will receive an additional $4,000 as a reward for slipping you a higher interest rate!
How can you protect yourself from this lender abuse? Comparison shopping from a variety of mortgage lenders and carefully comparing all aspects of the loan offers is the only way to ensure you do not overpay for your mortgage. You can learn more about comparison shopping for the best mortgage while avoiding common homeowner mistakes by registering for a free mortgage guidebook.
