Premium:   Lender pays some of borrower's costs The borrower (client) does not usually hear this term when obtaining a mortgage. A "premium" is the opposite of a "discount." With a discount, the borrower pays the lender a certain amount of money in return for a lower-than-par interest rate. But with a premium, the lender pays (you) the borrower a certain amount of money in return for giving you a higher-than-par interest rate. There are many regulations and restrictions pertaining to the use of a premium. Instead of paying you this "premium" money directly, the lender is often required to credit the premium against your closing costs. As with a discount, the premium might be expressed in terms of points (one point equals 1% of the loan amount). For example, let's say that 10% is the par interest rate, but the lender offers to pay 1½ points worth of your closing costs if you will accept an 11% rate. If the loan amount were $100,000 then the lender will cover $1,500 of your closing costs. Initially, the lender loses $1,500 of their own money, but they recover this over the loan term by charging you the above-par interest rate. One example of premium pricing is the VA NO NO (where the veteran has no down payment and no closing costs). The veteran receives an above-par interest rate; the lender promises to cover any closing costs. If you keep making payments on the mortgage for the entire term (eg. 30 years), the lender generally comes out ahead. But if you are short on funds for closing, or if you only plan to keep the mortgage for a few years, this may be a good option for you.