If you are in the process of refinancing your home mortgage, you may encounter the term “Yield Spread Premium.” This is a controversial subject being debated in Congress and pertains to the way mortgage loans are sold in the United States. That’s right, just like a kitchen appliance, what you pay for a mortgage depends on where go and who you know. You might think the mortgage you “qualify” for depends on your credit rating; while your credit score plays a role in the mortgage rate you receive, Yield Spread Premium is a significant factor.
What is Yield Spread Premium? Simply put, Yield Spread Premium is the retail markup of your mortgage interest rate by the loan originator. It doesn’t matter if your mortgage originator is a local mortgage company, a mortgage broker, an Internet lender or even a bank, every loan has the potential for Yield Spread Premium. (When this markup is charged by a Bank it’s called Service Release Premium)
Why do retail mortgage loans include this markup? Mortgage originators are paid by commission. The more expensive your mortgage loan, the larger the commission they receive. In fact, the wholesale lenders encourage mortgage retailers to overcharge homeowners by paying a bonus of one percent of the mortgage amount for every .25 percent they overcharge you. Do you think your mortgage broker is going to tell you they’re marking up your mortgage interest rate? Absolutely not, this markup will be buried deep in the disclosure statements accompanying your loan contract.
How can you avoid paying this unnecessary markup of your mortgage interest rate? Homeowners who make shopping for a mortgage without Yield Spread Premium a priority when comparing mortgage offers can qualify for wholesale mortgage rates. All it takes is a little time to learn how to talk like a mortgage insider and know the right questions to ask when applying. You can learn all this and more, including costly mistakes to avoid by registering for a free mortgage refinancing video tutorial.
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