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Rate vs. Lender Credit

A higher mortgage rate can buy a credit toward your closing costs, but you pay for it every month. This tool shows exactly when that trade comes out ahead, and when the lower rate wins, based on how long you keep the loan before you refinance.

The Trade-off

When you lock a mortgage, the lender offers a menu. Pay points to push the rate down, or accept a rate above par and receive a lender credit that offsets your closing costs. The credit is real money in your pocket on closing day. The cost is a higher monthly payment that follows you for as long as you hold the loan.

Which side wins is almost entirely a question of time. Keep the loan only a short while, refinance or sell soon, and the up-front credit can easily beat the small payment difference. Hold it long enough and the higher payment quietly erases the credit, then keeps going. The month where those two forces cancel out is the break-even, and it is the single number that decides the call.

The calculator below plots the net dollars for three higher-rate-plus-credit options against a 7% par loan, across every month you might refinance. Drag the slider to your expected refinance date and read the verdict.

Interactive Tool

Drag the slider under the graph. Toggle “cash” vs “true cost.” Works on phone and desktop.

How to Read It

Three moving parts.

The Slider
Your refinance month

Scrub to the month you realistically expect to refinance or sell. Every card and the verdict line update to that horizon. Earlier favors the credit; later favors par.

The Toggle
Cash vs. true cost

“Cash” counts only the extra payments minus the credit. “True cost” also counts the larger balance a higher rate leaves behind at refinance, so break-even arrives sooner.

The Ticks
Break-even markers

Each colored tick on the $0 line marks where that option stops beating the 7% par loan. Past its tick, the lower rate is cheaper for the rest of the term.

Questions

Lender credits, in plain terms.

What is a lender credit?
Money the lender applies toward your closing costs in exchange for accepting a higher interest rate. You pay less cash up front, but a higher rate means a higher monthly payment for as long as you keep the loan.
When does taking a higher rate for a credit make sense?
It depends on how long you keep the loan. A credit puts cash in your pocket at closing, but the higher payment slowly eats that advantage. Expect to refinance or sell before the break-even month, and the credit usually wins. Hold past break-even and the lower par rate comes out ahead.
What's the difference between the cash and true-cost views?
The cash view counts only the extra payments you make minus the lender credit. The true-cost view also accounts for the higher loan balance a higher rate leaves behind, which you carry into a refinance. True cost reaches break-even sooner.
Is this a rate quote?
No. It is an educational illustration built on a fixed example scenario. It is not a rate quote, an offer, or a commitment to lend, and it is not affiliated with or a quote from any lender. Confirm real numbers with a licensed loan officer.
Disclaimer
Illustration Only

This tool is provided for general educational purposes and uses a single fixed example loan. It is not a rate quote, an offer, or a commitment to lend, is not financial or lending advice, and is not affiliated with or a quote from any lender. Your actual rates, credits, and payments will differ. Verify all figures with a licensed mortgage professional before making a decision.

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