Loan Officer Practice Exam 2026 – Comprehensive All-in-One Guide for Exam Success!

A yield spread premium refers to the amount paid to borrowers or brokers by lenders for agreeing to a higher interest rate on a mortgage loan than the market rate. This means that when a borrower accepts a higher interest rate, the lender compensates the broker or loan officer with a yield spread premium.

This mechanism incentivizes brokers or loan officers to suggest loans with higher interest rates because it can lead to a larger commission for them, essentially allowing the borrower to receive a lower upfront cost in exchange for a higher interest rate over the life of the loan.

The context of the other answer choices involves common misconceptions about mortgage terms. Discounts on interest rates typically lower the cost of borrowing upfront and wouldn’t generate a yield spread premium. Fees for processing loans and additional costs associated with adjustable-rate mortgages do not pertain to the specific definition of yield spread premium, which directly relates to the compensation structure in the lending process.