Back to the Mortgage Rate Shopping Guide
A lender credit can offset eligible closing costs in exchange for a higher interest rate. Some refinance offers instead add eligible costs to the loan balance. Ask which approach the quote uses and what you will still owe at closing.
Compare the same loan on the same day
Request one Loan Estimate with credits and one with fewer or no credits. Keep the loan amount, program, term, and lock period aligned. On page 2, check the lender credit in Section J and compare cash to close separately. Ask which prepaids and escrow deposits are still due. On page 1, compare monthly principal and interest.
What does the credit cost over time?
Assume the higher-rate offer reduces upfront costs by $3,000 and increases monthly principal and interest by $75. Divide $3,000 by $75 for a simple 40-month break-even. After 24 months, the extra payments total $1,800. After 60 months, they total $4,500. This comparison leaves out differences in remaining loan balance, tax treatment, and the time value of money.
If the refinance rolls costs into the mortgage, compare both the starting balance and the projected balance at your expected sale or refinance date.
Run your own comparison
Use the points break-even calculator or compare the existing loan with a replacement using the refinance calculator. Read the refinance closing costs guide for what to include, or request a second opinion on an estimate you already have.