In a loan transaction, which term describes compensation paid by the lender to the broker based on the loan's interest rate?

In a loan transaction, which term describes compensation paid by the lender to the broker based on the loan's interest rate?

• A. Yield Spread Premium
• B. Origination Fee
• C. Discount Points
• D. Broker's Commission

Answer: (A)

This term describes compensation tied to the interest rate offered on the loan. Yield Spread Premium is paid by the lender to the broker based on how high the loan’s rate is above the lender’s base (par) rate. In other words, the broker earns more when the borrower ends up with a higher interest rate, and this payment comes from the lender. This is different from an origination fee, which is a fixed or flat charge for processing the loan; from discount points, which are paid by the borrower to buy down the rate; and from a broker’s commission, which is typically a percentage of the loan amount not tied to the rate itself. Yield Spread Premium uniquely links the broker’s compensation to the loan’s interest rate.

This term describes compensation tied to the interest rate offered on the loan. Yield Spread Premium is paid by the lender to the broker based on how high the loan’s rate is above the lender’s base (par) rate. In other words, the broker earns more when the borrower ends up with a higher interest rate, and this payment comes from the lender.

This is different from an origination fee, which is a fixed or flat charge for processing the loan; from discount points, which are paid by the borrower to buy down the rate; and from a broker’s commission, which is typically a percentage of the loan amount not tied to the rate itself. Yield Spread Premium uniquely links the broker’s compensation to the loan’s interest rate.