If you are considering refinancing your home mortgage loan there are a number of pitfalls that can cost you thousands of dollars. Mortgage companies routinely mark up your mortgage interest rate to boost their commission. If you unknowingly agree to this markup you’ll overpay every month you keep the loan. Here are several tips to help you avoid being taken advantage of when mortgage refinancing.

The retail markup of your mortgage interest rate is called Yield Spread Premium. Dishonest mortgage companies and brokers use this markup to line their pockets at your expense and it’s perfectly legal. Mortgage loans are commodity products just like kitchen appliances; there is a wholesale lender that approves your loan, and a retailer that marks up the loan for a profit. The problem with this retail markup is that you’re already paying origination fees for their services. Agree to pay Yield Spread Premium when refinancing and you’ll pay double, even triple for your new loan.

Here’s an example of how Yield Spread Premium works. Suppose you’ve agreed to refinance your home for $300,000 at 6.5%. What your mortgage broker isn’t telling you is that you qualified for a 6.0% mortgage rate; however, they’ve marked up the interest rate to 6.5%. The broker does this because the wholesale lender pays them 1.0% of the loan amount for every .25% they inflate your mortgage rate. In this example the mortgage broker pockets the $3,000 you’re required to pay in origination fees, plus $6,000 from the lender for a total of $9,000!

You get stuck paying thousands of dollars unnecessarily and the mortgage broker walks away with nine grand! Does this sound like theft to you? It’s blatant, perfectly legal, and happens on nearly every loan originated in the United States today. The good news for you is that you can avoid paying Yield Spread Premium when refinancing your home loan. Homeowners who learn to recognize this unnecessary markup can negotiate when comparison shopping to avoid paying it. You can learn more about Yield Spread Premium and other costly pitfalls to avoid when refinancing your home with a free mortgage video tutorial.