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. Investopedia Says:
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:
Discount Points
Negative Points
Origination Points
Yield Spread Premium |