What is the term for paying extra points to reduce the interest rate on a mortgage?

The term for paying extra points to reduce the interest rate on a mortgage is known as a buydown. In a buydown, the borrower pays upfront points to the lender, which in turn lowers the interest rate for the duration of the loan. This can make monthly payments more affordable and can be an attractive option for borrowers who are looking to reduce their costs over the life of the loan.

A buydown can benefit both parties: the borrower enjoys lower monthly payments, while the lender increases their initial cash flow through the upfront payment of points. This strategy is particularly useful in scenarios where the borrower anticipates that future income will increase or when refinancing is not an immediate option.

The other terms mentioned refer to different concepts in real estate financing. Discounting typically refers to selling a note or loan at less than its face value but doesn’t apply directly to paying points to reduce mortgage rates. Refinancing involves replacing an existing mortgage with a new one, often to obtain better terms, which is different from simply paying points to lower rates. Foreclosure is a legal process through which a lender takes control of a property when the borrower defaults on the loan, thus it is not related to adjusting interest rates through points.