Compare · Rate and closing cost
Mortgage points and lender credits: compare the tradeoff
Points and credits move mortgage cost between closing day and later payments. Compare both sides of the tradeoff on written, like-for-like Loan Estimates.
The short answer
Rate-linked points mean paying more at closing for a lower interest rate. Rate-linked lender credits mean receiving help with closing costs in exchange for a higher rate. Ask the same lender for options with and without them, then compare cash, payment, and total cost across several realistic timeframes.
01 · Two directions
Points and credits reverse the same rate-cost tradeoff
“Points” can sometimes describe other percentage-based fees, and some credits may compensate for a problem or promotion rather than a higher rate. Ask what each line item does to the rate and total cost.
02 · Convert the percentage
One point equals one percent of the loan amount
Multiply the loan amount by the number of points divided by 100. On a $300,000 loan, one point is $3,000 and 0.5 points is $1,500. Points do not have to be whole numbers.
- Loan amount
- $300,000
- Points
- 0.5
- Calculation
- $300,000 × 0.5 ÷ 100
- Dollar cost
- $1,500 at closing
There is no universal rate reduction per point. The change depends on the lender, loan, and market conditions, so use the written rate and cost for the actual option—not a rule of thumb.
03 · Like for like
Ask for options that differ only in points or credits
Compare options from the same lender at the same time first. That isolates the rate-cost tradeoff more cleanly than offers that also change the term, product, lock timing, or loan amount.
- Same lender, loan amount, term, product, and loan type
- Same issue date and rate-lock status
- Interest rate for each option
- Points paid and lender credits received
- Cash to close and monthly principal and interest
- Interest and fees over multiple realistic timeframes
When comparing different lenders, request the same points or credits from each. Different pricing structures and fees mean a similar point amount does not guarantee a similar overall deal.
04 · Written evidence
Trace points and credits through the Loan Estimate
- Page 1 loan terms and projected payment
- Page 2 Section A points
- Page 2 Section J lender credits
- Page 3 five-year comparison
- Rate-lock status and expiration
- Written explanation of how each option changes the rate
Discount points appear with origination charges in Section A. Lender credits appear in Section J and reduce closing costs. Keep cash to close separate from total loan cost: reducing one today may increase the other over time.
05 · More than one horizon
Test how long you might actually keep the loan
A simple points break-even divides the extra upfront cost by the monthly principal-and-interest savings. That estimate can be a useful starting point, but it does not capture every difference in amortization, timing, taxes, or a future sale or refinance.
- Choose a short, likely, and long period you might keep the loan.
- Record the upfront cash difference for each written option.
- Compare monthly principal and interest over each period.
- Use the Loan Estimate's five-year interest-and-fee comparison where relevant.
- Keep enough cash for closing needs and reserves in view.
No single horizon is right for everyone. Moving, refinancing, or paying off the loan sooner can change whether an upfront cost has time to produce savings.
06 · Make the lender show the math
Request a small option table in writing
- What rate and APR apply with zero points or credits?
- What exact dollar amount changes at closing?
- How much does monthly principal and interest change?
- Are these points or credits specifically linked to the rate?
- How do the options compare over my short, likely, and long timeframes?
- When does the rate lock expire, and what could change before closing?
This is a pricing comparison, not a prediction of future rates or a recommendation to choose points, credits, or neither.
07 · Official guidance