Compare the same loan assumptions
Ask each lender to show the same loan amount, property value, occupancy, credit assumptions, lock period and estimated closing date. A lower rate paired with more points or different assumptions is not a like-for-like comparison.
- Interest rate and annual percentage rate (APR)
- Discount points and lender credits
- Origination, underwriting and processing fees
- Mortgage insurance and recurring charges
- Estimated cash to close
- Rate-lock period and extension terms
Understand the cost of discount points
Discount points are upfront charges used to obtain a lower interest rate. Whether paying points makes sense depends on the upfront cost, expected monthly savings and how long the borrower expects to keep the mortgage. Dividing the point cost by the estimated monthly savings provides a simple starting estimate of the break-even period.
Review the complete Loan Estimate
The Loan Estimate separates lender-controlled charges from third-party services, prepaid expenses and initial escrow deposits. Taxes, insurance and title-related estimates can change, so focus on which costs differ because of the selected lender or loan structure and ask questions about any assumptions.
Common questions
Frequently asked questions
Does the lowest mortgage rate always save the most money?
No. A lower rate may require more discount points or fees. Compare upfront cost, monthly payment, expected ownership period and total cost for the same loan assumptions.
What is the difference between the interest rate and APR?
The interest rate determines the interest charged on the loan balance. APR is a broader disclosure that incorporates the rate and certain finance charges, but it should still be reviewed alongside the Loan Estimate and transaction details.
Are lender credits free?
A lender credit generally offsets eligible closing costs in exchange for different pricing, often a higher interest rate. Compare the credit, payment and expected time in the loan.