Yield-Spread Premium

Definition of "Yield-Spread Premium"

Betty  Smith real estate agent
Betty Smith, Real Estate Agent Homesmart

A payment made by a lender to a mortgage broker for delivering an above-par loan. A par loan is one on which the lender charges zero points. Lenders charge points on loans carrying interest rates below that on the par loan and pay points or rebates on loans carrying rates above that on the par loan. On loans involving mortgage brokers, the rebate on above-par loans is credited to the broker, and is referred to euphemistically as the 'yield-spread premium'' (YSP). YSPs are a major part of broker income. Because borrowers pay YSPs indirectly in the interest rate, they resist them less than they would broker fees paid directly out of their pockets. But a comparable form of 'rebate abuse' also occurs with lenders.


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