- The process of trading money or points for a lower mortgage rate. Some mortgage lenders offer brokers discount or buy-down points as a promotion or reward for repeat business. These points can then be used to reduce the interest rate on certain mortgage terms.
pay down the rate, reduced interest loan, discounted mortgage
Related Terms and Acronyms
- Basis Point (BPS) — Acronym, Very Important,
➥ Used by mortgage brokers and lenders when discussing mortgage rates and determining commissions.
- A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.
- Buy-down — Definition,
- When a borrower or a mortgage broker "buys down" a mortgage rate, they make an upfront payment to the lender in order to lower the mortgage rate. A similar effect can be achieved by making a lump sum payment at the beginning of a mortgage term.
- Commission (comm) — Abbreviation,
- A fee paid to a salesperson for selling a product to a customer.
- An agent's fee for negotiating a real estate or mortgage loan transaction, often expressed as a percentage of the selling price.
- Discount Point — Definition,
- A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount.
- Lump Sum Payment — Definition,
- One-time single-sum payment or payout.
- An extra payment made to reduce a loan.
- Margin — Definition,
- The difference between the cost and the selling price.
- Expressed as percentage points, the amount that a lender adds to an index to arrive at the final interest rate. For example, if the index is 9 percent and the margin 2.75 percent, the final interest rate is 11.75 percent.
- Point — Definition,
- A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.
- Shared-Appreciation Mortgage (SAM) — Acronym,
- A mortgage loan where the lender or a third-party backer agrees to offer a highly reduced mortgage rate to the borrower in exchange of sharing profits when the property is sold.
- A home loan in which the lender offers a below-market interest rate in exchange for sharing in the profit when the home is sold. Usually done only with private funds/lenders.