The Real Estate Encyclopedia
Yield Spread Premium
Category - Real Estate Glossary - Real Estate Terminology
Yield Spread Premium is also known as a Lender Rebate. It is the rate at which a mortgage broker is compensated for the difference between the interest rate on a par loan and the interest rate on an above par loan, which a broker can deliver to the lender. The Mortgage Broker is compensated same as if being the sales force of the lender. This is expressed in the number of points paid to a broker. A broker receives paymentofthe premium, the lender obtains a higher than par interest rate, and the borrower pays for the premium over the entire life of the loan through that higher interest rate and payments.

For example, if the interest rate on a par loan is 7% and the mortgage broker can deliver a 7.5% loan to the lender, the lender may be offering to pay the mortgage broker a rebate of 2 points or 2% of the loan value. For a $100,000 loan, the broker would be paid a $2,000 Yield Spread Premium by the lender and the borrower would have to pay a higher interest rate over the life of the loan.

Also on the adjustable rate mortgage (ARM) loans, a higher "margin" can result in a rebate from the lender to the broker. The "margin" is a component of the interest rate calculation on ARM loans. A higher margin results in a higher interest rate to the lender and therefore can generate a rebate to the broker.

Always ask your broker if rebate pricing is involved on your loan, a broker must disclose any rebate they are to receive in connection with your loan to you. Ask if any portion of the rebate will be used by the broker to offset your closing costs.



References
 
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Real Estate Glossary - Real Estate Terminology
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