Why Yield Spread Premiums can be a good thing for the consumer
YSP (yield spread premium) or also called rebate is very useful tool in financing or refinancing Everett real estate. For example I just did a refinance using an FHA mortgage.
I used the YSP to pay for my clients closing costs. I saved him a ton of money, and didn’t take a bunch of his equity to make the loan.
I used the YSP to save my client money, lower his payment and save his equity.
Some politicians want to eliminate the YSP because they don’t understand its uses.
I am writing this blog to try and explain how this is extremely useful to the consumer. When you limit the consumer’s choices you always increase his costs.
I will try to keep the technical stuff and the numbers down but in a discussion like this it is hard to do. But here is how an FHA mortgage with a rebate can be used to refinance Everett real estate.
My client has a $425,000 payoff. His current payment is $3331.00 and that is principle, interest, taxes and insurance. He has an adjustable loan and his payments are going up. So he asked me to see if I could come up with a way to lower his payments and keep the cost down.
An FHA mortgage is the only one he qualifies for because of current market conditions. You see just like everyone else he has lost equity in his home due to market conditions. FHA mortgages allow a refinancing of your Everett real estate up to 97.75% of it’s current value.
We came to the conclusion that the value of his property is around $440,000. At that value if I am using an FHA mortgage we are limited to a maximum of $430,100 as a new loan amount. If I could not use a YSP to pay for the loan costs I could only do an FHA mortgage if we could get an appraisal for $445,525. We might get that value and then again we might not.
I was able to get him a new loan for $422,000 by using the rebate (the YSP) and paying my clients closing costs with it. His new payment is $3017.95 and saves him $313.05 per month. With all fees he has a payback of 14 months. His loan is a fixed 30 year FHA mortgage at 5.375%.
If we had to get his loan without any rebate (YSP) his new interest rate would be lower at 4.875%. And his new loan would have had a monthly payment of $2964.63 per month but with a monster catch. You see his new loan amount would have been $435,500 and the payback period would have been over 49 months.
So you see here with the YSP we have a new loan at a lower loan amount and a slightly higher interest rate. But we didn’t take anywhere near as much of his equity to pay for the loan costs. We saved him $13,500 in equity by using the rebate or YSP to pay for the loan costs.
YSP or rebate is a great tool for refinancing Everett real estate and in combination with a FHA mortgage can save you lots equity.
Jim Johnson and comments are always welcome.
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