Visio Lending is proud to offer Yield Spread Premium or YSP for its approved brokers. This is not only a huge perk for mortgage brokers but yield spread premiums also can benefit borrowers. Let's take a closer look.
What is Yield Spread Premium (YSP)?
Investopedia defines yield spread premium as: “a form of compensation that a mortgage broker, acting as the intermediary, receives from the original lender for selling an interest rate to a borrower that is above the lender's par rate for which the borrower qualifies.” That is a pretty good definition, but it too, requires a bit of explaining.
So Visio is the original mortgage lender and the mortgage broker is the intermediary in this definition, but what is the par rate? Think of the par interest rate as the retail interest rate (a lower interest rate) that Visio might charge if no intermediary or broker was involved in the transaction. We say “might” because mortgage brokers add value to transactions in a variety of ways; thus, many mortgage lenders actually have higher interest rates they charge if they are working directly with a retail customer.
How Mortgage Brokers Get Paid
Mortgage brokers usually get paid by receiving “points” on a loan, receiving YSP, or both. Points on a loan are paid in cash at closing. This means that on a purchase, the customer has to provide more upfront costs on top of their closing costs. On a refinance, points paid in cash at closing usually mean the customer receives less cash-out proceeds. YSP allows the customer to finance part of their broker’s compensation as part of the mortgage loan. The customer agrees to pay a higher interest rate on the loan. In return for that higher retail mortgage rate, the lender agrees to pay the broker compensation in cash at or shortly after the closing.
Therefore, the borrower pays the mortgage broker's compensation in their monthly payment and lowers their upfront costs.
How Yield Spread Premium Benefits the Broker and Borrower
So let’s put this all together. Most brokers average 1.5% to 3% in compensation on the loans they originate. It varies by geography, loan type and loan size. So instead of requiring their customer to pay them say 3 points (3%) at close, brokers could charge borrowers 2 points at close with a slightly higher interest rate. In return for the higher interest rate, the lender will pay the broker the last point.
Something important to know. For consumer mortgage transactions, yield spread premium must be disclosed on the closing statement. This generally is not the case for business purpose or commercial loans.
Earn Up to 2 Points Yield Spread Premium as a Visio Broker
Through the Visio Broker Program, brokers can charge up to 2 points yield spread premium and 3 points on the front end of additional compensation. A Visio mortgage broker receives a designated Account Executive to keep your workload down, as well as tools and resources to be successful. Become an Approved Broker today.