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.