What Are Yield Spread Premiums?
Yield spread premiums refer to kickbacks paid by lenders to mortgage brokers as an incentive to steer consumers into higher interest rate loans than what they otherwise qualify for. In other words, a broker could get thousands of dollars in extra commissions by convincing a buyer to sign for a 10% loan rate when they actually qualify for a 7% loan rate. The buyer is stuck with a loan that costs them tens of thousands of dollars in extra interest. Addtitionally, the monthly payments could be hundreds of dollars more than the buyer should be paying. Mortgage brokers must disclose yield spread premiums in the loan documentation. However, most brokers gloss over this material when explaining the paperwork to homebuyers.
