What are negative points?
Answer:Borrowers should know what negative points are.
Negative points are called rebates, reduce borrowers' closing costs and increase the interest rate of the loan.
When to take negative points?
Negative points are used by borrowers to pay off closing costs. Especially when the borrower needs the house for a short time and plans on selling or refinancing before or around the break even time, a no cost or a low cost mortgage (the same as taking negative points and slightly higher rate) are a preferred choice for many.
Also, negative points are called Yield Spread Premium (YSP) and are retained as compensation for the mortgage company. Lenders are not required to declare their YSP, while brokers are but not until closing. However, the mortgage company may not declare the exact way of covering closing costs as means to boost their gain.
As a borrower, you would like to know how points are used to pay your closing costs and it is advisable you approach an upfront mortgage broker (UMB) or upfront mortgage lender (UML) when seeking rate/point combinations.
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