Refinance Fees: Where Did My Lender Credits Go
by Jack S. from Scottsdale, AZ
Ask Kate about refinance fees, specifically who benefits when mortgage closing costs are less than lender credits: Jack was told by his broker if he locked in at a higher than market interest rate (buy up), it would result in lender credits (yield spread premium) that would pay his refinance fees in entirety.
This saved Jack from out-of-pocket cost and the figures were supported by his Good Faith Estimate. Additionally and as all savvy shoppers do, he verified his originator's brokerage fee.
But now Jack is left asking where the difference between the lender credit and his closing costs went. With no explanation, the remaining $2500 simply seems to have disappeared. Yes, you read that correctly. $2500 that the lender credited to Jack is at large.
This means he took a much higher mortgage rate than he needed.
Refinance Fees: Where Did My Lender Credits Go By Jack S. from Scottsdale, AZ
I recently got a mortgage refinance and used an online broker.
When I got my Good Faith Estimate, I saw the breakdown of Lender Credit and brokerage fee. The difference was the amount available to pay all my closing costs.
So far, so good.
However, when I got my final HUD statement, I was surprised that my total closing costs were less than what was available but I didn't receive the difference - about $2,500 in my case.
Can you explain this for me? I thought I should receive it because I was accepting a higher interest rate but the broker told me no. I can only get the amount to cover my closing costs.
Is that correct? If so, who really gets to keep it? The lender or the broker via some later compensation arrangement? Doesn't quite seem right. Anyway, would appreciate your thoughts. Thank you.
Ask Kate answers: Mortgage Closing Costs, Buy Ups, and Yield Spread Premiums
Well! Saying that a missing $2500 doesn't seem right is an understatement.
You need answers. Now.
Why did the broker advise you to lock in a higher rate under the guise of paying closing costs when the total fees were significantly less than the lender credits (yield spread premium)? For a Good Faith Estimate to miss the mark by $2500 is significant.
But as your broker explained, the lender will not likely cut you a check for $2500 because under most circumstances, that figure would be considered cash-back. Refinance programs that result in cash to the homeowner are underwritten under different guidelines and carry higher interest rates.
So if a no-cash refinance resulted in $2500 going to the homeowner, the lender would not be able to sell the mortgage to an investor. Even so, that does not explain where the $2500 went.
Ask for Principal Balance Curtailment
So I suggest you ask for a principal balance curtailment of $2500. What's a curtailment, you are probably asking.
A curtailment pays off a portion of the mortgage loan balance, in your case, by $2500. Although the reduction will not lower your monthly payment, it will result in an earlier pay-off, thus less interest paid.
Of course, it is a shame that you were told to take a higher interest rate than necessary. But it would be an even worse shame to see the $2500 revert to the lender or broker when you paid for the credits upfront in a higher interest rate.
So first try to get your loan originator to work on applying the $2500 to your principal balance. But if you don't get anywhere, call his or her supervisor. You can also call the big-box lender where your mortgage transaction was brokered.
Should you hit a roadblock, lodge a complaint with appropriate government agencies. Go here to learn How to Contact Washington DC and Other Elected Officials to File Complaints
Mortgage Lingo Explained: Yield Spread Premiums, Lender Credits, Buy Ups, Locking Rates
I've been using the occasional mortgage lingo in my answer to Jack. So back tracking, here are some Ask Kate letters that explain the terms.
Best wishes for finding your credits,
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