How to calculate yield spread premium (YSP)?Answer:
Why calculate Yield Spread Premium (YSP)? The YSP is the premium paid by the lender to the broker for originating a loan. Mortgage loan wholesale rates are not passed to consumers directly; rather, a mortgage broker is offered the lender's rate and brokers pass a retail price to consumers.
The YSP calculation formula is the effective mortgage interest rate, provided by the broker, minus the minimum lender rate offered for this loan.
YSP = (Retail interest rate) - (Minimum lender rate)
If the broker manages to pass a higher retail rate to the borrower, the benefit is spread between the lender and the broker.
Higher Yield Spread Premium (YSP) may signify predatory lending.
Ask for the YSPs when shopping for mortgages. YSP is also referred to as rebate or back-end points. If your mortgage rate is comparable to other similar loans, the YSP is probably ok. If you seem to be charged higher, you should ask why.
Homebuyers are advised to use broker services on exclusive terms. That is, pay the broker a fixed fee to shop a loan with the most beneficial rate and terms for the borrower.
Upfront Mortgage Brokers (UMBs) usually have a fixed charge and pass the wholesale rates to the borrower. They also could pass any possible rate reductions to the borrower if a reasonable prepayment penalty clause is possible.
Upfront Mortgage Lenders (UMLs) are also a good option. UMLs are most easily located online. The way you recognize a UML is that personal data is not collected early in the process and the loan rates and terms will be specific rather than generic.
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