Yield Spread Premium

Author: Rob K. Blake | Date: July 24, 2008 | Filed In: Glossary

Yield Spread Premium - YSP - Defined

Yield spread premium is easy to understand if you think of it as “the income made by unnecessarily raising your interest rate”.

A loan officer earns is income by arbitrarily raise the rate of your loan over the “par rate” and the income derived is called the yield spread premium. The larger the rate bump the greater the profit.

For example, If a loan officer offers a mortgage rate of 6.25% when the par rate is really 6%, the YSP is equal to about 1.0% of the loan amount. On a $200,000 the YSP or loan officer earnings are $2,000.

The Yield Spread premium is paid by the lender for delivering this “higher than expected rate”. Is often referred to as a “rebate.”

Disclosure of this extra income is required on both the Good Faith Estimate at application and at closing on the settlement statement. However, since most consumer don’t even know it exists, they rarely know what to look for or are told it’s not a fee they need to worry about. Although it is true YSP is not a “direct fee”, it is definitely something the borrower pays…albeit not a as a one time fee… but monthly as a higher rate which goes on as long as the loan is outstanding.

Author: Rob K. Blake