What is the term for a fee paid to lower the interest rate on a loan?

The term for a fee paid to lower the interest rate on a loan is known as a "buy down." This practice involves an upfront payment made by the borrower, either at the time of loan origination or as part of the closing costs, to reduce the interest rate throughout the life of the loan. By paying this fee, borrowers can achieve lower monthly mortgage payments, making their loans more affordable over time.

In contrast, an origination fee is charged by a lender for processing a new loan application, which is not specifically aimed at reducing the interest rate but rather compensating the lender for the work involved in originating the loan. A processing fee covers the costs associated with processing the loan application, and a service charge typically refers to fees for specific services provided by the lender but does not directly relate to lowering interest rates. Each of these terms serves distinct purposes in the mortgage process, with the buy down specifically targeting the reduction of interest costs.