Mortgage Par Rate


DEFINITION of 'Mortgage Par Rate'

An interest rate used as the reference point for which a mortgage lender will neither pay a rebate (yield spread premium or negative points) or require discount points for a mortgage.

Also, an interest rate used as a reference point for which a mortgage lender will pay another lender par value (100% of the principal balance of a mortgage) for an existing mortgage. The lender will pay a premium for mortgages with interest rates above their par rate, and a discount for mortgages with interest rates below their par rate.

BREAKING DOWN 'Mortgage Par Rate'

Par rates are also used in the valuation of mortgage servicing rights (MSR). Servicing rights on a mortgage with an interest rate above the par rate is worth less than servicing rights on a mortgage with an interest rate below the par rate. This is because the higher the interest rate on a mortgage is above the current par rate, the more likely that mortgage will prepay, which eliminates the future stream of cash flows associated with the servicing rights.

  1. Origination Points

    A type of fee borrowers pay to lenders or loan officers in order ...
  2. Discount Points

    A type of prepaid interest mortgage borrowers can purchase that ...
  3. Yield Spread Premium

    A form of compensation that a mortgage broker, acting as the ...
  4. Negative Points

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  5. Encumbrance

    A claim against a property by a party that is not the owner. ...
  6. Equity

    Equity is the value of an asset less the value of all liabilities ...
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