Negative Points

Definition of 'Negative Points'


A cash rebate paid by lenders to a mortgage broker or the borrower for a mortgage with an interest rate above the lender's par interest rate. When the rebate is paid to the mortgage broker, it is known as a yield spread premium, and is part of the mortgage broker's compensation.

When the rebate is credited to the borrower it can be used to defray loan settlement costs. This is typically known as a no-cost mortgage. The amount credited to the borrower may not exceed loan settlement costs, and may not be used as part of the down payment.

Investopedia explains 'Negative Points'


Negative points provide a way for borrowers with little or no money to pay the settlement costs and obtain a mortgage. However, the true economics of using negative points will depend on the borrower's time horizon.

If the borrower intends to hold the mortgage for a short period of time, it can be economical to avoid upfront costs in exchange for a relatively higher interest rate. If the borrower intends to hold the mortgage for a long period of time, it is most likely more economical to pay upfront settlement costs in exchange for a relatively lower interest rate.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center