Buy-Up

AAA

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 Premium

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

    The difference between yields on differing debt instruments, ...
  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 ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Credit & Loans

    Mortgage Points: What's The Point?

    Learn how to pay less for your home in the long run, or save in the short run.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Credit & Loans

    Are APRs different in different countries?

    Learn about the term APR and how it is used in the United States and other countries. Explore why different lenders charge different APRs.
  7. Credit & Loans

    What loans do and don't have an APR?

    Learn about what annual percentage rates (APR) are and what they mean. Explore different fixed and variable APRs charge by different lenders.
  8. Credit & Loans

    What are the pros and cons of owning an equity REIT versus a mortgage REIT?

    Learn about investing in equity, mortgage and hybrid REITs. Explore the different strategies REITs employ to generate income and create dividends.
  9. Credit & Loans

    What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information relating to total outstanding debt.
  10. Home & Auto

    What factors should I consider when shopping for the best mortgage lender?

    Comparing lenders to obtain the best mortgage loan requires research and willingness to shop around for the best loan to fit individual needs.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center