Mortgage companies do not have just one rate for each loan. Each loan program has several rates available that change at least daily. Sometimes, rates change multiple times a day. Loan officers at mortgage brokers and lenders use these rate sheets to determine the interest rate they choose to charge you for your loan. Loan officers normally charge a rate that pays yield spread premium, or YSP, as compensation for closing the loan. The higher the interest rate, the more YSP the loan officer receives.
Determine which pricing system the rate sheet uses. There are two ways rates and YSP are shown on a rate sheet. YSP is always paid in a percentage of the loan amount. If the interest rate of 6 percent pays 1 percent of the loan amount, it can be reflected as either 101.00 or (1.00), depending on the system used. This number usually is to the right of the interest rate shown on a chart. If the rate requires payment of 1 percent, it would read 99.00 or 1.00 (positive numbers are amounts paid to the lender; negative numbers--in parentheses--are amounts paid by the lender).
Find the loan program for which you, as a beginning loan officer or mortgage processor, wish to price a loan. Usually each chart will have the title of the program at the top. Locate what is closest to “par,” which means no money paid to or by the lender. Usually there will not be a true par but a number just above or below the number. Par would be represented as 100.00 or 0.00.
Calculate the adjustments required for the loan. Loan adjustments are usually at the bottom of the sheet in a separate grid. Loan adjustments can be for a number of things, including credit score, loan amount, loan purpose and loan-to-value. Assume the adjustments are to the YSP and not the interest rate unless it specifically states it is to rate. The same number system applies. If the adjustment is for (0.25), this is more money the lender will pay. If it is 0.25, this is money paid to the lender.
Choose how long you wish to lock the loan. The three most common lock-in periods are 15, 30 and 60 days. The longer you lock the rate for, the less YSP will be paid. The mortgage company usually will show these lock terms on the rate sheet. Add or subtract the adjustments to the pricing that shows in the grid of your interest rate and lock term.
- Call your account executive or talk with your manager if you are new to reading rate sheets. Many adjustments must be taken into consideration before you quote a rate to someone. It’s always better to calculate it twice than to find out you are making only half as much as expected.
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