If you are buying a mortgage, one of the ways a mortgage broker will earn a bonus on writing your mortgage is to use a yield spread premium. Say you will qualify for a mortgage at 6.5 percent. The mortgage broker will quote you 6.75 percent on the loan.
If you agree to the 6.75 percent mortgage loan, the broker will get approximately half of difference in a bonus, or in this instance 1/8th of a point of the loan. So if you are looking at a $400,000 dollar loan, the broker is looking to make a bonus of $2,000 for the deal.
And that is why when negotiating for a mortgage talk to a few brokers and let them know you are shopping the deal. This will take away the incentive to raise the interest rate they are quoting you for your mortgage and you can save thousands over the life of the loan.
