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.

RELATED TERMS
  1. No-Cost Mortgage

    A mortgage refinancing situation in which the lender pays the ...
  2. Negative Points

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  3. Mortgage Servicing Rights - MSR

    A contractual agreement where the right, or rights, to service ...
  4. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  5. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  6. Mortgage Originator

    An institution or individual that works with a borrower to complete ...
Related Articles
  1. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  2. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  3. Investing

    Score a Cheap Mortgage

    Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible.
  4. Personal Finance

    Mortgage Broker vs. Direct Lenders: Which is Best?

    There are key differences between mortgage brokers and direct lenders. Here's how to choose which is best for you.
  5. Personal Finance

    5 Reasons To Save For A Big Mortgage Down Payment

    You may be anxious to buy a home, but taking time to save a large down payment has numerous advantages.
  6. Personal Finance

    7 Low-Rate Mortgage Shams

    Interest rates on a mortgage aren't the only factor defining a good loan.
  7. Insights

    Tips for Choosing the Best Online Mortgage Lender

    Finding the right online mortgage lender can be a tall task. Here's some help on how to avoid wasting your time.
  8. Investing

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  9. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
  10. Personal Finance

    Don't Get Overcharged for Your Mortgage

    Don't pay more for a mortgage than necessary. Here’s a quick look at the different categories and how to be sure you're getting the best deal.
RELATED FAQS
  1. What is the process to take over a mortgage through a loan assumption?

    My landlord wants me to take over her mortgage.  ... Read Answer >>
  2. How can I avoid paying private mortgage insurance (PMI)?

    Private mortgage insurance (PMI) is an insurance policy that protects lenders from the risk of default and foreclosure, and ... Read Answer >>
  3. Why would a stock have no par value?

    People often get confused when they read about the "par value" for a stock. One reason for this is that the term has slightly ... Read Answer >>
  4. I've come into a large amount of money. Should I invest it or pay off my mortgage?

    There is no simple answer to this question as it depends on a number of key factors, namely the aspects or criteria of your ... Read Answer >>
  5. What does tier 1 capital tell investors about a bank's operations?

    Learn about which financial instruments have par values and what this means about the market price of the most common of ... Read Answer >>
  6. Why does the loan-to-value ratio matter?

    Learn how the loan-to-value (LTV) ratio is calculated, and why this metric is important to lenders when evaluating a home ... Read Answer >>
Trading Center