Which mortgage offer is cheaper?

Comparing Loan Estimates the right way

The lowest rate isn’t always the cheapest loan. One lender may quote a lower rate that requires paying points; another may offer a higher rate with a lender credit that covers some closing costs. The fair way to compare is the total cost over the time you’ll actually keep the loan.

What to enter

From each Loan Estimate, take the interest rate, points (in section A, as a percentage of the loan), the lender’s other fees (the rest of section A) and any lender credits (section J). Third-party costs like title insurance, appraisal and taxes are usually about the same between lenders, so leaving them out keeps the comparison focused on what lenders control.

How the comparison works

For each offer, we add the up-front cost to the interest you’d pay over the years you expect to keep the loan. Principal isn’t a cost, because you keep it as equity. Where one offer costs more up front but has a lower payment, we show how long it takes for the lower payment to make up the difference.

An example

On a $400,000 loan kept for 7 years, an offer at 6.125% with 1.25 points can beat one at 6.5% with no points by several thousand dollars. If you sell or refinance within about 3 years, the no-point offer would come out ahead.

Tips

• Ask for estimates on the same day, for the same loan type and lock period.
• Be realistic about how long you’ll keep the loan; many people refinance or move within 7–10 years.
• Ask each lender whether they’ll match a better offer.

Beyond the numbers

Price isn’t everything. Ask each lender how quickly they can close, whether they underwrite in-house, and how they handle rate locks if closing slips. A lender that misses a closing date can cost you the house. For competitive offers, ask whether they can provide a fully underwritten pre-approval, which makes your offer stronger. When the costs are close, those factors can matter more than a few hundred dollars.

Questions buyers ask