What is the difference between Yield Spread Premium (YSP) and loan origination fee? Both are ways that loan officers earn their commission. However, they aren’t the same thing.

Yeild Spread Premium is a percentage based fee paid to the mortgage broker based on the whole sale rate they give you for the loan. It should be disclosed to you on your Good Faith Estimate, and will show up on your settlement sheet (HUD-1) as a Paid Outside of Closing (POC) fee from the lender to the broker.

In order to reduce your closing costs, you can ask your mortgage professional to eliminate your origination fee in exchange for a slightly higher interest rate and Yield Spread Premium. Many morgage professionals will grant that request.

Yield Spread Premium is paid by the lender to the mortgage company at closing. It is not a fee that is charged to you. Although it does have an impact on your interest rate, you should not be alarmed just because you see the Yield Spread Premium on your HUD-1 closing statement. Every company makes their money somewhere, mortgage brokers make it through Yield Spread Premium and Loan Origination Fees. If you're comparing two loans to each other, the best way to compare your loan to see if you're getting the best deal is to compare the APR (Annual Percentage Rate) of each loan. This is the interest rate of your loan with the closing costs factored in and amortized over the life of the loan. Just as with interest rates, lower is better. The APR will be disclosed on your Truth In Lending Disclosure.

 

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