Yield Spread Premium - Say What?

Yield Spread Premium is the most common reason to lose a mortgage rate lock.

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Keep reading to learn how to protect the mortgage rate you think you locked.

Interest Rates And Fees Explained

Too much losing is going on. I have lost my patience! Homeowners are losing their mortgage rate lock! And much of this loss is due to yield spread premium (YSP).

Don't get me wrong. YSP rebates used responsibly by mortgage brokers can be beneficial to you. It works like this.

A mortgage broker is offered wholesale money from lenders. The higher the locked-in interest rate, the greater the yield spread premium rebated back to the broker.

Originally the yield spread premium was intended to be applied to mortgage closing costs or mortgage broker fees. This helped home buyers use their cash efficiently to make larger down payments. In the event of a refinance, yield spread premium helped a homeowner finance less and retain more equity.

Written Mortgage Rate Lock Agreement

But what happens when fees AND a significant YSP are charged? Can we all say "double dipping"?

Now I can't tell you what constitutes fair closing costs or how big a YSP rebate should be but I will say this. Had a homeowner insisted on receiving a written mortgage interest rate lock agreement and good faith estimate, proof of the promised rate and fees would exist.

What Happens To Yield Spread Premium

Are you wondering why I said yield spread premium is the greatest cause of losing a rate lock? There's an easy answer.

If the mortgage broker never followed through with a lock-in before interest rates rose, increased rates lowered your YSP rebate. In addition to losing any profit, if rates rose high enough, he would have to use his own money to close the transaction.

Where is the incentive for a broker to close? Your mortgage loan just became a hot potato. The broker cannot drop it fast enough. There is no profit left for him.

Sadly, without a written rate lock agreement, a borrower cannot prove the low rate of a lifetime that was supposed to have been locked.

It's time for this practice to end! Get your mortgage rate lock agreement along with mortgage closing costs in writing. You owe it to yourself.

Five Reasons To Get Written Lock Agreements

Not that I want to dwell on the negative. But I do want to impress upon you why getting your rate lock agreement IN WRITING is a must!

Mind you, not all brokers have unethical practices. But if the number of stories on the internet about losing rate locks is any indication, I don't recommend taking chances.

Getting a written rate lock can help prevent...

1. getting promised a low ball rate to beat out the competition
2. your loan from languishing while brokers "play the market"
3. your application from getting back burnered
4. getting caught in a rapid rate spike
5. anxiety and high blood pressure

More Help Understanding Mortgage Closing Costs

Do you know the one question to ask to save huge amounts of money over the life of a mortgage? Find it at How To Lasso Mortgage Closing Costs on my newest website Prime-Real-Estate-Articles.com.

After all, if you have been reading my articles, you know what I am going to say. It is your mortgage. No one cares more about it than you. I know you deserve the best!

Ask Kate To Translate Yield Spread Premium

Ask Kate

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