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 Says:
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:
Adjustable-Rate Mortgage - ARM
Dual Apper
HUD-1 Form
Mortgage
Mortgage Broker
No-Cost Mortgage
Nominal Yield Spread
Payment Option ARM
Yield Spread |