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. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  4. Dual Apper

    A potential mortgage borrower who submits two mortgage applications ...
  5. Nominal Yield Spread

    The spread, expressed in percent or basis points, that when added ...
  6. No-Cost Mortgage

    A mortgage refinancing situation in which the lender pays the ...
RELATED FAQS
  1. No results found.
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. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Brokers

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.
  6. Investing

    What is Asset Management?

    In the investment world, asset management refers to active management of an investor’s portfolio by a financial services company – usually an investment bank.
  7. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  8. Professionals

    How to Choose a Robo-advisor? Follow the Money

    Which of the many robo-advisors will still be around in a decade? Here's an informal look at who might thrive and who might simply survive.
  9. Investing Basics

    Why Do Penny Stocks Fail?

    Penny stocks are speculative and highly risky investments. Lack of government and stock exchange oversight and general information leaves penny stock investors open to sudden losses.
  10. Brokers

    Do You Know How To Beat Your Broker?

    Want more returns? Give less of it to your broker! Keep your costs down, starting with broker costs.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center