Yield Spread Premium

AAA

DEFINITION of 'Yield Spread Premium'

A form of compensation that a mortgage broker, acting as the intermediary, receives from the original lender for selling an interest rate to a borrower that is above the lender's par rate for which the borrower qualifies. The yield spread premium must be disclosed on the HUD-1 Form when the loan is closed.

INVESTOPEDIA EXPLAINS 'Yield Spread Premium'

Mortgage brokers are compensated directly by borrowers when the borrower pays an origination fee, when the lender pays the broker a yield spread premium or a combination of these. If there is no origination fee, the borrower is most likely agreeing to pay an interest rate above the market rate. There is no such thing as a no-cost mortgage for the borrower.

Paying an interest rate above market rates to compensate a mortgage broker/lender is not necessarily a bad thing for the borrower, as it can reduce the mortgage's upfront costs. If the borrower expects to hold the mortgage for a short time, paying a relatively high interest rate can be more economical than paying high fees up front. A thorough analysis should be performed before any contracts are signed.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Net Interest Rate Spread

    The difference between the average yield a financial institution ...
  3. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  4. Mortgage Broker

    An intermediary who brings mortgage borrowers and mortgage lenders ...
  5. HUD-1 Form

    A form used by a settlement or closing agent itemizing all charges ...
  6. Yield Spread

    The difference between yields on differing debt instruments, ...
Related Articles
  1. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. How Mortgage Refinancing Affects Your ...
    Credit & Loans

    How Mortgage Refinancing Affects Your ...

  3. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  4. Understanding The Mortgage Payment Structure
    Credit & Loans

    Understanding The Mortgage Payment Structure

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center