Buy-Up

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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".

INVESTOPEDIA EXPLAINS '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. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Points

    1. A 1% change in the face value of a bond or a debenture. 2. ...
  3. Yield Spread

    The difference between yields on differing debt instruments, ...
  4. Yield Spread Premium

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

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

    An intermediary who brings mortgage borrowers and mortgage lenders ...
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