DEFINITION of 'Buy-Up'

Points paid by a lender to a borrower or mortgage broker for a loan with an above-market interest rate. When the points are paid to the borrower, it is known as a rebate, and must be used to defray loan settlement costs. When the points are paid to the mortgage, it is known as yield spread premium, and is part of the broker's compensation.

A buy-up is also known as "negative points".

BREAKING DOWN 'Buy-Up'

Receiving a rebate in exchange for a higher interest rate can be economically advantageous to a borrower - if the borrower expects to hold the mortgage for a short period of time. The reduction in out-of-pocket loan settlement costs can offset the increased interest that will be paid out over a short-time horizon. A thorough analysis should be made in any mortgage scenario involving buy-ups and buy-downs, or positive and negative points.

RELATED TERMS
  1. Negative Points

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  2. Mortgage Broker

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  3. Interest Cost

    The cumulative sum of the amount of interest paid on a loan by ...
  4. Closing Points

    Points that are paid at the time of closing of a mortgage transaction. ...
  5. No-Cost Mortgage

    A mortgage refinancing situation in which the lender pays the ...
  6. Yield Spread Premium

    A form of compensation that a mortgage broker, acting as the ...
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