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. Yield Spread Premium

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

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  4. Discount Points

    A type of prepaid interest mortgage borrowers can purchase that ...
  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 ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Credit & Loans

    How Mortgage Refinancing Affects Your Net Worth

    Find out how to determine whether refinancing will put you ahead or even more behind.
  3. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  4. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  5. Home & Auto

    5 Steps To Scoring A Mortgage

    Find out what you can do to polish up some of the common flaws that put off lenders.
  6. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  7. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  8. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  9. Investing

    Where Should I Keep My Down Payment Savings?

    While saving up for a down payment, where should you keep your money. A bank? The stock market? It all depends on your timeline.
  10. Credit & Loans

    Questions To Ask Your Mortgage Lender

    When buying a house, avoid nasty surprises by asking the right questions about your mortgage lender's qualifications and the mortgage process.
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  3. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  4. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
  6. What are the financial consequences of filing for bankruptcy?

    The financial consequences of filing for bankruptcy are substantial and can be long-lasting. They include impacts on your ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!