How To Read Mortgage Rate Sheet
A mortgage rate sheet is a godsend when it comes to keeping loan officers honest. The wholesale mortgage rate sheet tells the tale when you are quoted an inflated rate.
You can catch this artificial upping of the rate (Yield Spread Premium or Service Release Premium) and eliminate it by knowing how to read a rate sheet and ask for it on the day of lock. Ethical brokers will always share the rate sheets with clients. Unethical banks and brokers will find some excuse not to.
Mortgage Rate Sheet Explained
To beat these guys at their own game, you simply must learn how bank and mortgage broker rates are priced.
Understanding how to price a loan by reading a mortgage rate sheet is really quite easy though it may seem intimidating at first. It will all become clear as you read this so take the 10 minutes and understand this practice. Doing so will save you $1,000’s over your lifetime owning and financing houses!
Here we go!
A wholesale mortgage rate sheet is furnished by the wholesale lender or wholesale division of a bank on a daily basis. When reviewing the mortgage rate sheet, we also determine which rate will NOT create a rebate from the lender known as a Yield Spread Premium.
Let’s use the rate sheet data below to demonstrate how we determine mortgage rates we would and did quote ethically to our borrowers. We will also show you using the corresponding HSH Survey data how other Brokers and Banks are making enormous undisclosed profits in the form of Yield Spread Premium.
This mortgage rate sheet data was collected from a real wholesale lender on 03/10/2006.
30 Year Fixed Rate
15 Day 30 Day 45 Day
5.750% 1.350 1.475 1.600
5.875% 0.611 0.736 0.861
6.000% 0.039 0.164 1.826
6.125% (0.392) (0.267) (0.142)
6.250% (0.773) (0.648) (0.523)
6.375% (1.180) (1.055) (0.930)
6.500% (1.623) (1.498) (1.373)
6.625% (2.029) (1.904) (1.773)
6.750% (2.280) (2.155) (2.030)
HSH ASSOCIATES National Ave. SURVEY CONVENTIONAL
30 Yr
6.51%
In our example, we will quote our borrower a 30 year rate that carries a lock period of 30 days. If we are seeking to earn only a 1.0% origination fee and NO yield spread premium (back end fee), we will quote the rate of 6.000%. According to the mortgage rate sheet, 6.000% actually costs .164% Discount payable to the Lender not us the broker.
On this, 6.000% is as close to par pricing as we can get. As you can see the next higher rate, 6.125% creates .267% of Yield Spread Premium and that’s not good.
So with this example, look at the costs for a loan at 6.00% with an ethical broker who does not charge YSP.
Rate: 6.000%, $200,000 Loan x 1.0% Broker Origination Fee + 0.164 Discount = $200,000 x 1.164% = $2,328.00
Now we will show how everyone else does it!
First realize that banks and brokers don’t usually quote mortgage rates you’ll close with. They “bait” with low-ball rates and artificially lowered closing costs to get you to apply with them. Then on closing day, the rates and costs “switch” to those higher than expected. You’ve got the moving van idling in parking lot, so you sign.
The old bait-n-switch on the rate is a common practice. The loan officer will get very creative on explaining all the reasons why this had to happen, but suffice it to say, this was the plan from the beginning.
So with this mortgage rate sheet data, let’s look at what they made.
Rate: 6.500%, $200,000 Loan x 1.0% Broker Origination Fee +1.498 YSP = $200,000 x 2.498% = $4,996.00
The banks and brokers simply cannot forgo the Yield Spread Premium overcharging because at the very least it DOUBLES their income!
Of course, locating a local, ethical broker who will share his mortgage rate sheet with you is your best protection…check out The Mortgage Advantage to learn step-by-step how to interview and hire the right provider.
Good Luck!
Author: The Mortgage Insider
Previous Post:« Best Mortgage Rates Rarely Found Online
Next Post:» Rate Lock: Get It In Writing
Tagged with: Mortgage Rate Sheet • Mortgage Rates • Wholesale
"Our Online Quote Service Is A Guaranteed Way To Compare Mortgage Offers Quickly." - Rob K. Blake, The Mortgage Insider ...Click Here!
Thanks for the informative article on how the YSP is calculated, very helpful. In looking at some example rate sheets, I have noticed that there are some other values that seem to play into this calculation called “adjusters”. For example, for someone with >= 740 FICO but > 85% LTV there is a adjustment of (0.250). Can you explain how these adjusters work and how they affect the YSP and/or the interest rate?
Matt,
These are called “add ons”…and you can read about them here…
Add On Defined
Todd,
Terri’s post now only includes “average US” rates rather than try to keep up with all the regional differences in rates quotes.
You can see the rates daily updated here…Today’s Mortgage Rates.
Hope that helps…
Each day Teri quotes the days rate. Hows does just that one quote and corresponding YSP percentage correlate with the many varying rates on a Mortage Rate Sheet? Is it the one best possible choice out of all???
Matt,
You got it.
Think of the unethical broker simply going up, up and up in rate until he gets the YSP/Rate combo he thinks you’ll take.
Needless to say, your interests (get the lowest rate) “conflict” with his interests (get the most commission in YSP).
From a purely “rate sheet” point of view, discount points are when the rate is dropped and the markets needs “upfront money” to secure you a lower than “par” rate. YSP is when the rate is increased above “par” so the market pays back a “premium” for getting such an above market rate.
Opposite ends of the same spectrum.
You got it!
RKB
This article makes everything chrystal clear now. I now understand “discount” and where the YSP comes from. An ethical broker will look at the chart and find the lowest rate for the lowest discount. An unethical broker will set the rate where they will make the most YSP they can get away with. Am I correct in assuming the term “discount” and YSP are interchangable? or does YSP describe something which falls under the umbrella of “discount”?
Thanks
Matt Lynn