Borrowers pay points (a point being 1% of the loan amount) for the privilege of borrowing. Normally, the more points the borrower is willing to pay, the lower the interest rate the borrower receives. Conversely, lenders offer negative points (a "yield spread premium") as rebates that induce borrowers to accept higher interest rates in return for up-front money. Since points are part of the settlement costs and must be paid before the borrower gets the loan, negative points get subtracted from the settlement costs. However, buyers can't cash out these negative points, nor can they apply them toward a down payment.
