How to compare loan offers so the answer is right
A loan offer has several prices: the interest rate, the points and fees you pay at closing, and any credit the lender gives you. Comparing only the rate, or only the monthly payment, hides the rest. This calculator adds them up the way the Consumer Financial Protection Bureau suggests. It works out your cost of borrowing: the money you pay for the loan (points and fees, less credits) plus the interest you pay while you have it. Principal you pay back is left out, because that money is yours again as equity.
The result depends on how long you keep the loan, so the calculator shows the answer for your own number of years and then shows which offer wins at every other length of time. A lower rate that costs more up front loses if you leave early and wins if you stay.
What to enter from your Loan Estimate
Lenders must give you a Loan Estimate within three business days of your application. It is a standard three-page form, so offers line up. Here is where each box on this page comes from:
| Box | Where to find it |
|---|---|
| Loan amount, rate, term | Page 1, "Loan Terms" and "Loan Term". |
| Discount points | Page 2, Section A, the line shown as a percentage of the loan amount ("Points"). Enter the percentage. |
| Other lender fees | The rest of Section A (application, underwriting and similar fees), plus Section B, "Services You Cannot Shop For". Add them up. |
| Lender credit | Section J, "Lender Credits", which the form shows as a negative number. Enter it as a positive amount. |
| How long you will keep the loan | Your own plan. The CFPB says borrowers keep a mortgage about five years on average. |
Leave out property taxes, insurance, prepaid items and escrow deposits (Sections E, F and G). The CFPB advises comparing the numbers within the lender's control, and those are not. Ask each lender for the same kind of loan with the same features, and compare Loan Estimates issued around the same day, because rates move daily.
The formulas, and what every term means
cost of borrowing after k months = points + fees − lender credit + interest paid in months 1 to k
interest paid in k months = payment × k − (loan − balance after k months)
balance after k months = P × (1 + r)k − payment × ((1 + r)k − 1) ÷ r
| Term | Meaning |
|---|---|
| P | The loan amount |
| r | Monthly interest rate: the annual rate ÷ 12 ÷ 100 |
| payment | Monthly principal and interest: P × r ÷ (1 − (1 + r)−n), with n the number of months in the term |
| points | Points × 1% of the loan. One point on a $320,000 loan is $3,200. |
| k | How many months you keep the loan |
Worked example 1, by hand: is one point worth it?
A $320,000 30-year loan from two lenders. Lender 1 offers 6.75% with no points. Lender 2 offers 6.25% for one point ($3,200). Both charge $3,000 in other fees. The rates are examples, so use your own quotes.
First, the cost of Lender 1's loan after 5 years (60 months):
- Monthly rate r = 6.75 ÷ 12 ÷ 100 = 0.005625. The payment is $2,075.51.
- (1 + r)60 = 1.4001, so the balance after 60 payments is $320,000 × 1.4001 − $2,075.51 × (1.4001 − 1) ÷ r = $300,402.
- Principal repaid = $320,000 − $300,402 = $19,598. Payments made = $2,075.51 × 60 = $124,531.
- Interest paid = $124,531 − $19,598 = $104,933.
- Cost of borrowing = $3,000 fees + $104,933 interest = $107,933.
| Lender 1: 6.75%, no points | Lender 2: 6.25%, one point | |
|---|---|---|
| Monthly payment | $2,075.51 | $1,970.30 |
| Paid up front | $3,000 | $6,200 |
| Interest in the first 5 years | $104,933 | $96,897 |
| Cost of borrowing at 5 years | $107,933 | $103,097 |
| Cost of borrowing at 10 years | $205,025 | $192,196 |
Lender 2 costs $3,200 more on day one. Its interest is lower every month, so the gap closes, and the calculator finds that Lender 2 becomes the cheaper loan after month 24 (2 years). If you keep the loan 5 years you are ahead by $4,836, and by $12,829 at 10 years. If you leave before month 24, the points cost you money.
A common rule of thumb is a little too slow
Many guides say to divide the cost of the points by the monthly payment saving. Here that is $3,200 ÷ $105.22 = 30.4 months. The true break-even, counting interest, is month 24. The reason is that only part of a payment is interest. In the first month the lower rate saves $133.33 in interest but only $105.22 in payment, because the lower-rate loan also pays down more principal each month. The rule of thumb is a fair first guess and errs on the cautious side.
Worked example 2: three offers, and it depends how long you stay
The three offers that fill the calculator when you open it, on the same $320,000 loan: A at 6.875% with no points and $2,800 in fees, B at 6.5% with 0.75 points and $3,400 in fees, and C at 6.25% with 1.5 points and $3,900 in fees.
| Cost of borrowing after | Offer A | Offer B | Offer C |
|---|---|---|---|
| 1 year | $24,696 | $26,495 | $28,594 |
| 2 years | $46,356 | $46,950 | $48,246 |
| 3 years | $67,764 | $67,149 | $67,642 |
| 5 years | $109,746 | $106,712 | $105,597 |
| 7 years | $150,483 | $145,032 | $142,312 |
| 10 years | $208,847 | $199,798 | $194,696 |
| 15 years | $296,899 | $282,060 | $273,146 |
| 30 years | $439,582 | $413,942 | $398,006 |
The cheapest offer changes with time. Offer A is cheapest for the first 29 months (up to 2 years, 5 months), because it costs the least up front. Offer B is cheapest from month 30 (2 years, 6 months) to month 43. From month 44 (3 years, 8 months) on, Offer C wins. For someone who expects to keep the loan five years, C is the choice; for someone who might move in two years, A is. That is the answer a single "best rate" cannot give.
Worked example 3: the "no closing cost" loan
One lender advertises a loan with no closing costs. On the same $320,000 loan, the lender credit of $4,500 cancels the $4,500 of fees, but the rate is 6.875% instead of 6.5%.
| "No closing cost": 6.875% | Pay the fees: 6.5% | |
|---|---|---|
| Paid up front | $0 | $4,500 |
| Monthly payment | $2,102.17 | $2,022.62 |
| Cost of borrowing at 5 years | $106,946 | $105,412 |
The higher rate costs $79.55 more every month. Paying the fees becomes the cheaper choice after month 45 (3 years, 9 months); at 5 years it is ahead by $1,533. A no-closing-cost loan is a good fit if you will keep the loan for a short time or are short of cash today. It is not free, as the CFPB reminds borrowers: the price is paid in the rate.
Worked example 4: a car loan with the lowest payment
A $28,000 car loan. The dealer offers 72 months at 7.9%. A credit union offers 48 months at 6.4%. Neither charges points or fees. The tool takes the term in years, so enter 6 and 4.
| Dealer: 72 months, 7.9% | Credit union: 48 months, 6.4% | |
|---|---|---|
| Monthly payment | $489.56 | $662.73 |
| Interest paid in the first 4 years | $6,335 | $3,811 |
| Still owed after 4 years | $10,835 | $0 |
| Total interest over the whole loan | $7,249 | $3,811 |
The dealer's payment is $173.16 lower each month, which is why it feels cheaper. Over the whole loan it costs $3,438 more in interest, and after four years you still owe $10,835. Choose the longer loan only if the payment is the limit on what you can afford. Check that budget with the car affordability calculator.
Reading the results
- Cheapest offer is the lowest cost of borrowing at the number of years you entered.
- Monthly payment is principal and interest only. It is what you can afford each month, not what each offer costs.
- Principal repaid shows equity built by that date. A shorter loan repays more, so it can cost less in interest and still have the higher payment.
- The table by years shows who wins if your plans change. Where the highlight moves, an offer overtakes another.
- Dashed lines on the chart mark the months when the cheapest offer changes.
Common mistakes to avoid
- Comparing only the rate. Points and fees are part of the price, and a lender credit can reverse the ranking.
- Comparing only the monthly payment. The lowest payment often comes from the longest loan, which usually costs the most interest.
- Comparing Loan Estimates from different days. Rates change daily, so a gap can be the market and not the lender.
- Comparing different loans. Ask for the same loan type, term and features, or the numbers do not line up.
- Buying points you will not keep long enough. If you may move or refinance before the break-even month, skip them.
- Forgetting to negotiate. The CFPB notes that lenders often match or beat a competitor's offer when you show them one.
What is not included
Adjustable rates, monthly mortgage insurance that differs between offers, property tax and insurance, the mortgage interest deduction, closing costs paid in cash versus rolled into the loan, and what your money could earn if invested instead are not modeled. If an offer has mortgage insurance that another lacks, compare the total monthly payment on page 1 of the Loan Estimate as well. This is a planning tool, and your lender's Loan Estimate and Closing Disclosure are the authoritative documents.
Sources and review
The payment and balance formulas are the standard fixed-rate amortization formulas, and the calculator is tested against closed-form results and a direct month-by-month search. The idea of a cost of borrowing over five years, the lines to compare on a Loan Estimate, the three-business-day rule and the 45-day credit inquiry window come from the Consumer Financial Protection Bureau: Compare and negotiate your loan offers and Request and review multiple Loan Estimates. Last reviewed September 2026. Read about our methodology. Next, see the full monthly payment in the mortgage calculator, estimate your cash to close with the closing cost calculator, or compare loan terms in the 15 vs 30 year mortgage calculator.