BROWSE

Yield Spread Premium

Definition

A yield spread premium is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs, generally paid in origination fees, broker fees or discount points. This "may [be used to] wipe out or offset other loan costs, like Loan Level Pricing Adjustments."

What is '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.

Explaining '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.


Further Reading


A re-examination of the predictability of economic activity using the yield spread
www.nber.org [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

The high-yield spread as a predictor of real economic activity: evidence of a financial accelerator for the United StatesThe high-yield spread as a predictor of real economic activity: evidence of a financial accelerator for the United States
link.springer.com [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

Kickbacks or compensation: The case of yield spread premiumsKickbacks or compensation: The case of yield spread premiums
heinonline.org [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

Financial predictors of real activity and the financial acceleratorFinancial predictors of real activity and the financial accelerator
www.sciencedirect.com [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

Determinants of market-assessed sovereign risk: Economic fundamentals or market risk appetite?Determinants of market-assessed sovereign risk: Economic fundamentals or market risk appetite?
www.sciencedirect.com [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

The information in the high-yield bond spread for the business cycle: evidence and some implicationsThe information in the high-yield bond spread for the business cycle: evidence and some implications
academic.oup.com [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …

Yield spread and term to maturity: default vs. liquidityYield spread and term to maturity: default vs. liquidity
onlinelibrary.wiley.com [PDF]
… Since then, various authors have investigated a variety of alternative interest rates and spreads.1 … yields according to the expectations hypothesis. Both of these interpretations of the yield spread's usefulness for forecasting real output …


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