How to use the mortgage comparison calculator
- Enter the loan amount, which is the same for both offers, and the number of years you expect to keep the loan.
- For Loan A and Loan B enter the interest rate, the term, the points as a percent of the loan and any other closing costs.
- Read the headline to see which loan costs less over your time horizon and by how much.
- Check the table for the monthly payment, upfront cost, interest and balance after your horizon, and the breakeven on the extra upfront cost.
Formula
Monthly payment = loan x r / (1 - (1 + r)^-n), where r = APR / 12
Upfront cost = loan x points % + other closing costs
Cost over the horizon = interest paid in those months + upfront cost
Breakeven months = extra upfront cost / monthly payment saved
Principal repaid is not a cost because it builds equity, so it is left out of the comparison. Interest is worked out month by month with each month rounded to the cent.
Worked example
Compare a $300,000 loan at 6.75% with no points against 6.25% with one point, both 30 years with $3,000 of other costs, for a borrower who keeps the loan 7 years.
Loan A has a payment of $1,945.79 and upfront cost of $3,000. Loan B has a payment of $1,847.15 and upfront cost of $6,000 because one point is $3,000.
Over 7 years Loan A pays $135,809.30 of interest and Loan B pays $125,261.54. Adding upfront costs gives $138,809.30 versus $131,261.54, so Loan B costs $7,547.76 less. The extra $3,000 pays back in about 31 months.
Why the time you keep the loan matters
Points and closing costs are paid at the start, while a lower rate saves money month after month. A loan with a lower rate and higher upfront cost wins if you keep it long enough and loses if you sell or refinance sooner. Over only 1 year in the example above, Loan A wins by $1,498.13, so change the years field to test your own plan.
Comparing different terms
You can compare a 30 year loan with a 15 year loan. The shorter loan has a higher payment but less interest and a faster drop in the balance. The headline compares interest plus upfront cost, and the table also shows the balance left after your horizon so you can see the equity you build.
What to put in for fees
Use the points and closing costs shown on each lender's Loan Estimate. Count only costs that differ in a real way, or enter the same costs for both offers. To test points on one loan, try the mortgage points calculator.
Assumptions and limits
- Both loans are fixed rate with level payments and no prepayment penalty.
- Taxes, homeowners insurance and mortgage insurance are excluded because they are usually the same for both offers.
- The comparison does not discount money over time or credit the interest you could earn on cash not spent.
- If your horizon is longer than a loan term, that loan's cost stops at the end of its term.
Frequently asked questions
How do I compare two mortgage offers?
Compare the payment, the upfront costs and the interest you will pay over the time you will keep the loan. This tool does all three and shows the point where a higher upfront cost pays for itself.
Is a lower rate always better?
Not if it comes with high points and you will not keep the loan long. The breakeven number shows how many months it takes for the monthly savings to cover the extra upfront cost.
Should I count principal as a cost?
No. Principal you pay is equity in your home, so only interest and fees are the cost of borrowing. The table lists the balance left so you can see how much equity you built.
Can I compare an adjustable rate loan?
Not directly. The tool assumes a fixed rate. You can still test a scenario by entering the rate you expect for the period you will keep the loan.