Real Estate Glossary > Y > Yield Spread Premium Definition

The amount a lender pays a mortgage broker to sell his borrowers a loan with a higher interest rate The cost of borrowing money expressed as a yearly percentage rate. . The difference between the highest rate and the lowest possible rate is the "spread." The incentive the lender pays the mortgage broker when his clients take the higher rate is the "premium." Unless the mortgage broker is passing on the value of the premium to the borrower, yield spread premiums are never in the borrower's best interests. Mortgage brokers are required by law to disclose yield spread premiums. They list them in the Good Faith Estimate An estimate of a loan's total costs, including interest, principal, mortgage insurance and fees, which lenders are required to provide borrowers within three business days after a borrower submits a loan application. used to project a loan's costs, and on page two of the HUD-1 Settlement Statement The official settlement document for the purchase and sale of real estate that lists all the costs of the transaction for both the buyer and the seller. form (look for a broker rebate on lines 810 – 815) that adds up the final, actual costs. The Good Faith Estimate usually includes a broad range for yield spread premiums such as "0 – 4%" of principal, making it difficult to know what the broker actually plans on charging you. Even on a HUD-1 settlement form, a yield spread premium is only disclosed when money passes from a lender to a mortgage broker, who works for a different company. If a borrower is working directly with the lender, the lender can pay its sales-people any bonus it likes without having to disclose that bonus.