Refinance Offers Comparison Calculator

Lender credits are funds that a mortgage lender provides to help offset your closing costs. Essentially, the lender agrees to pay a portion of your upfront fees in exchange for charging you a slightly higher interest rate over the life of the loan.

How lender credits work:

• Reduce or eliminate out-of-pocket costs at closing
• Result in a higher interest rate (typically 0.125% to 0.5% increase)
• Make sense if you plan to sell or refinance within a few years
• Help preserve cash for other investments or expenses

Example: A lender might offer a $3,000 credit toward your $5,000 closing costs, but increase your rate from 5.5% to 5.75%. You'll pay $2,000 at closing instead of $5,000, but pay more interest over time.

Mortgage points (also called discount points) are upfront fees you pay to your lender to reduce your interest rate. One point equals 1% of your loan amount and typically reduces your rate by 0.25%.

Types of points:

• Discount points: Paid to lower your interest rate (tax-deductible)
• Origination points: Fees charged by the lender for processing (not always tax-deductible)

When to buy points:

• You plan to keep the loan for many years
• You have extra cash available at closing
• You want to maximize long-term savings
• Current rates are already relatively low

Example: On a $300,000 loan, one point costs $3,000 and might reduce your rate from 6% to 5.75%, saving you approximately $50/month. Your break-even point would be 60 months (5 years).

Choosing the best refinance offer depends on multiple factors beyond just the interest rate. Consider these key aspects:

Financial factors to compare:

• Total cost over loan term: Add up all payments plus closing costs minus any credits
• Monthly payment: Ensure it fits comfortably in your budget
• Break-even point: How long until you recoup closing costs through savings
• Cash needed at closing: After credits and points are applied
• Interest rate vs. APR: APR includes fees and gives a truer cost picture

Consider your timeline:

• Staying 2-5 years: Consider lender credits to reduce upfront costs
• Staying 5-10 years: Balance between rate and costs
• Staying 10+ years: Buying points for a lower rate may maximize savings

The decision between paying points or taking lender credits depends on your financial situation and how long you plan to keep the loan:

Pay points if:

• You plan to stay in your home for 7+ years
• You have extra cash and want to maximize long-term savings
• You want the lowest possible monthly payment
• You are in a high tax bracket and can benefit from the deduction

Take lender credits if:

• You plan to sell or refinance within 3-5 years
• You want to minimize upfront costs
• You would rather invest your cash elsewhere
• You need to preserve liquidity for other expenses

Use our comparison calculator to see the exact impact of points vs. credits on your specific offers and determine which strategy saves you the most money based on your timeline.

The Annual Percentage Rate (APR) represents the true cost of your loan, including both the interest rate and certain fees. Unlike the interest rate alone, APR gives you a more complete picture of what you'll pay.

APR includes:

• Interest rate
• Origination fees
• Discount points
• Mortgage insurance (if applicable)
• Other lender fees

Why APR matters: Two loans with the same interest rate can have very different APRs if one has higher fees. A loan with a 5.5% rate and $8,000 in fees might have a 5.8% APR, while a 5.75% rate with $2,000 in fees might have a 5.85% APR. Comparing APRs helps you identify the true cost.

Important note: APR assumes you will keep the loan for its full term. If you plan to refinance or sell earlier, focus more on actual out-of-pocket costs and monthly payments rather than APR alone.

Closing costs can vary significantly between lenders, typically ranging from 2% to 6% of your loan amount. Understanding what's negotiable can save you thousands.

Costs that DON'T vary much:

• Title insurance and search fees (set by title company)
• Appraisal fees (set by appraiser)
• Government recording fees (set by county)
• Credit report fees

Costs that CAN vary significantly:

• Origination fees: 0% to 1.5% of loan amount - highly negotiable
• Application fees: $0 to $500 - some lenders waive this
• Processing fees: $300 to $900 - negotiable
• Underwriting fees: $300 to $900 - varies by lender
• Document preparation: $0 to $300 - sometimes negotiable

Pro tip: Request a Loan Estimate from each lender within the same 3-day period. Compare Section A (Origination Charges) and Section B (Services You Cannot Shop For) carefully. Do not just focus on the interest rate - a slightly higher rate with much lower fees can save you money.

The break-even point is the time it takes for your monthly savings to equal the total cost of refinancing (closing costs minus any lender credits). It is a critical metric for determining if refinancing makes financial sense.

How to calculate:
Break-even months = Net closing costs ÷ Monthly savings
Net closing costs = Closing costs - Lender credits + Points paid

Example:
- Closing costs: $6,000
- Lender credits: $2,000
- Net cost: $4,000
- Monthly savings: $200
- Break-even point: 20 months (1 year, 8 months)

Decision guidelines:

• If you will stay longer than the break-even period: Refinance makes sense
• If you will move or refinance before break-even: Consider offers with lower costs or lender credits
• If uncertain about timeline: Look for offers with shorter break-even periods