How it works
A mortgage offer is three numbers, not one: the rate, the points, and the fees. The lowest rate is rarely the cheapest loan, because you buy it with points and closing costs. This tool compares two offers on total cost over the years you will actually keep the loan — the honest horizon, since most mortgages are paid off by a sale or refinance well before 30 years. It computes each offer's monthly payment, walks the amortisation schedule to find the interest paid and balance remaining at your exit, and adds the upfront charges. The points question resolves to a single break-even number: how many months of the lower payment it takes to repay the extra upfront cost. Pay a point — 1% of the loan — to cut your rate by 0.25% and the break-even is typically five to seven years. Keep the loan longer and the points win; sell or refinance sooner and you paid for a discount you never collected. That is why the years-you-stay field drives the answer. Total cost here counts upfront charges plus interest paid; principal repaid is excluded because that money is still yours as equity. Compare Loan Estimates line by line — origination, discount points, third-party fees — and never choose on rate alone.
Formula
Total cost = upfront (points x loan + fees) + interest paid over your stay | Break-even months = upfront gap / monthly payment gap
Tips
- Compare Loan Estimates on the same day — rates move daily and a stale quote is not comparable.
- Choose on total cost over your real tenure, not the 30-year rate; most loans end early.
- One point (1% of loan) for 0.25% off breaks even around 5-7 years — pay points only if you will stay past that.
- A no-closing-cost loan just moves fees into a higher rate; run both structures through the same horizon.
- The monthly payment gap funds the points payback — a tiny gap means a very long break-even.
Frequently asked questions
- Are mortgage points worth it?
- Only if you keep the loan past the break-even, typically five to seven years per point. Each point costs 1% of the loan upfront and buys roughly 0.25% off the rate. Stay longer and the interest saving wins; sell or refinance sooner and the points were wasted.
- How do I compare two mortgage offers?
- On total cost over the years you will actually hold the loan, not the headline rate. Add each offer's points and fees to the interest you will pay before your expected exit, accounting for the balance you will still owe. The offer with the lower total cost is cheaper regardless of rate.
- Should I take a lower rate with points or a higher rate with no points?
- Match it to your tenure. A lower rate with points wins for a long hold; a higher rate with no points wins if you expect to move or refinance within a few years. The break-even month count tells you exactly where the crossover sits.
- What fees should I compare on a Loan Estimate?
- Page 2, section A (origination charges and points) and the third-party fees in sections B and C. Lender-controlled fees are negotiable and vary widely; third-party fees like title and appraisal differ less. Ignore prepaid taxes and insurance — those are your costs regardless of lender.
- Is a no-closing-cost mortgage really free?
- No. The fees are moved into a higher interest rate or added to the loan balance. It can be the right choice for a short hold, since you avoid the upfront outlay, but over a long tenure the higher rate usually costs more than the fees it replaced.