Lender Credit vs Lower Rate Calculator
Compare two mortgage offers when one gives you a lender credit and the other charges less interest. The calculator shows the payment tradeoff, two break-even views, and the net savings at the month you expect to sell, refinance, or pay off the loan.
Recommended option at planned exitLower-rate offer
- Payment with lender credit
- $2,594.39
- Payment with lower rate
- $2,528.27
- Monthly savings with lower rate
- $66.12
- Upfront savings with lender credit
- $5,000.00
- Payment-only break-even
- 6 years 4 months
- Payoff-adjusted break-even
- 5 years
- Lower-rate net savings at planned exit
- $2,039.02
- Payoff-balance savings at planned exit
- $1,484.91
- Lower-rate lifetime savings
- $18,803.31
Planned exit comparison
| Offer | Monthly payment | Payments by exit | Payoff balance at exit |
|---|---|---|---|
| Lender-credit offer | $2,594.39 | $217,928.96 | $363,149.89 |
| Lower-rate offer | $2,528.27 | $212,374.86 | $361,664.98 |
Principal and interest only; taxes, insurance, mortgage insurance, HOA dues, and escrow items are not included.
Assumes both offers use the same loan amount, term, payment timing, and no extra principal payments.
How to use this calculator
- Enter the loan amount and the full amortization term that are the same in both offers.
- Enter the higher rate and lender credit from the lender-credit option.
- Enter the lower rate and any extra points or lender fees required for that option.
- Enter how long you expect to keep the mortgage, then compare the recommendation and break-even rows.
How the comparison is calculated
A lender credit lowers cash due at closing, but it usually comes with a higher interest rate. A lower-rate offer works in the opposite direction: you give up the credit, and may pay points or extra lender fees, in exchange for a lower monthly principal-and-interest payment.
This calculator first computes the fixed monthly payment for each offer:
M = L × r × (1 + r)^n ÷ ((1 + r)^n − 1)
- L is the loan amount.
- r is the annual rate divided by 12.
- n is the number of monthly payments.
If a rate is zero, the payment is simply the loan amount divided by the number of payments. The monthly savings are the lender-credit payment minus the lower-rate payment. The upfront advantage of the lender-credit offer is the lender credit plus the extra upfront cost you avoid by not choosing the lower-rate offer.
The simple break-even divides that upfront advantage by the monthly savings and rounds up to a full month. That shortcut is useful, but it misses an important mortgage detail: two loans with different rates do not always have the same remaining payoff balance at the month you sell or refinance.
The payoff-adjusted result includes the remaining balance. After t payments, the balance is:
B = L × (1 + r)^t − M × ((1 + r)^t − 1) ÷ r
The lower-rate net savings at a planned exit are:
t × monthly savings + balance savings − upfront advantage
Balance savings mean the payoff balance on the lender-credit loan minus the payoff balance on the lower-rate loan. The payoff-adjusted break-even is the first month when that combined savings reaches zero or better.
What moves the answer most
The rate difference and the holding period usually matter most. A small rate gap can still be worth it if you keep the loan long enough, while a large lender credit can win if you refinance or sell soon. Extra upfront points or lender fees make the lower-rate option take longer to catch up.
What this leaves out
The estimate includes principal and interest only. It does not include taxes, insurance, mortgage insurance, HOA dues, escrow changes, tax effects, inflation, investment returns on cash kept at closing, or the chance that you refinance for reasons unrelated to this rate choice. Use the lender's Loan Estimates to confirm credits, points, and fees before treating the result as final.
Worked example
Suppose both offers are for a $400,000, 30-year mortgage. The lender-credit offer has a 6.75% rate and a $5,000 credit. The lower-rate offer has a 6.5% rate and no extra upfront cost. If you expect to keep the loan for seven years, the lender-credit payment is $2,594.39 and the lower-rate payment is $2,528.27, saving $66.12 per month.
The payment-only break-even is 76 months. The payoff-adjusted break-even is 60 months because the lower-rate loan also has a smaller payoff balance. At the seven-year planned exit, the lower-rate offer is ahead by $2,039.02 after including $1,484.91 of payoff-balance savings and subtracting the $5,000 upfront advantage of the lender-credit offer.
Common questions
Is taking a lender credit worth a higher mortgage rate?
It can be worth it when the upfront credit matters more than the future payment savings. That usually happens when you expect to sell, refinance, or pay off the loan before the lower rate breaks even. If you keep the loan past the payoff-adjusted break-even, the lower-rate offer is usually stronger.
How do I calculate the break-even point on a lender credit?
The simple version divides the lender credit and avoided upfront costs by the monthly payment savings from the lower rate. A mortgage comparison is better when it also compares the remaining payoff balance. This calculator shows both because the balance difference can move the break-even earlier.
Why is payoff-adjusted break-even earlier than payment-only break-even?
A lower rate usually leaves you with a smaller remaining balance at the same point in time. If you sell or refinance, that smaller payoff is real value in addition to the monthly payment savings. The payment-only shortcut ignores that value.
What happens if I refinance or sell before break-even?
If you exit before break-even, the lender-credit offer often leaves you better off because you received cash help upfront and did not keep the loan long enough for the lower payment to catch up. The planned-exit savings row estimates that result for the holding period you enter.
Are lender credits the opposite of discount points?
In practical terms, yes. Discount points are upfront costs paid to lower the interest rate, while lender credits are upfront help from the lender in exchange for accepting a higher rate. The exact pricing depends on the lender rate sheet.
Should third-party closing costs be included?
Only include costs that differ between the two offers. If appraisal, title, recording, prepaid taxes, or insurance charges are the same either way, they do not change this comparison. Include extra lender fees or points required for the lower rate.