Points and Yeild Spread Premium

In todays financial enviorment, there are Points and Yield Spread Premiums.

Points are either paid up front, at close or paid through loan proceeds.

Points can be either origination points or discount points or both.

No Point Loans are available and there are many resons borrowers choose this option.

1.      Lack of cash to close escrow. If you are purchasing a new home and are short on cash for the down payment, a "No Points — No Closing Cost" mortgage can save you up to thousands of dollars.

2.      If the estimated time you will be staying in the home is less than 7 years, while paying points and closing costs will give you a lower interest rate and a lower monthly payment, it typically takes about 7-10  years of living in the property to realize the benefit of the lower payment when weighed against the total cost of the points.

3.      Lack of equity in the property when refinancing. A similar situation as portrayed in item "1". If it makes financial sense to refinance your mortgage, but you do not have enough equity in the property to add your closing costs into the new mortgage - a "No Points — No Closing Cost" mortgage could make great sense.

A “yield spread premium” (YSP) is the money or rebate paid to a mortgage broker.

Yeild Spread premiums become an issue when borrowers don't want to — or can't — pay the loan  fees. In those cases, brokers can collect payment from lenders and credit the buyer at close. The lender then rolls the additional cost into the interest rate of the loan.

Critics maintain that this gives brokers an incentive to hike rates or steer to pacticular programs.

The yield spread premium allows brokers to offer clients a no-point loan by allowing us to earn a fee from the lender.

While some argue that the premiums are always out of line, consumer advocates warn that borrowers need to be aware of the fees and make informed decisions about what they're willing to pay when obtaining a mortgage.

The trade-off that a borrower has to evaluate and we can help  is, 'Is it worth it to pay a higher interest rate?' because the yield spread premium is determined by increasing the interest rate."

The YSP is derived from many variables like market, credit,  loan to value and many others.

Currently it is required that when you apply for a lona you are to receive the Good Faithe Estimate  and yeild Spread Premium.
YSPs as a financial instrument is very controversial. What is controversial is the fact that brokers and lenders have different disclosure requirements and opinions regarding YSPs.


                  Both can exsist in a given transaction.

                                      Call we can help.