What this calculator does
It shows which of two mortgage offers costs less over the years you actually expect to keep the loan, by how much, and when the answer changes.
Offers rarely differ in just one way. One has a lower rate but charges discount points; another has a higher rate and lower fees; one may run 15 years and the other 30. The monthly payment alone cannot settle that, and neither can total interest over 30 years if you are likely to sell or refinance long before then.
Enter each loan's amount, rate, term, points and fees, then your best guess at how long you will keep it. The results show the cheaper loan over that period, each loan's payment and upfront cost, the break-even month, and a chart of how the costs build up.
How the math works
For each loan the calculator builds the full amortization schedule: every month, interest is the balance times the annual rate ÷ 12, and the rest of the payment reduces the balance. It then measures the cost of borrowing over your horizon.
- L
- loan amount
- p
- discount points as a decimal (1 point → 0.01)
- F
- other upfront lender fees
- n
- months you keep the loan: your horizon × 12
The break-even is the first month when the loan with higher upfront costs has a lower running total than the other one.
Why upfront costs plus interest is the fair measure
Money you put into a mortgage goes three places: upfront costs, interest and principal. The first two are gone for good. Principal is not: every dollar of it lowers what you owe and stays yours as home equity, which shows up as a smaller payoff when you sell or refinance. Adding up total payments would make a loan that pays down faster look more expensive when it has really left you owning more. So the comparison counts only the money that leaves for good, and the table reports the remaining balance separately.
Why the horizon decides it
Points and fees are paid on day one; interest savings arrive a month at a time. A loan with higher upfront costs and a lower rate starts behind and catches up. Sell or refinance before the break-even and the loan with lower upfront costs has cost less; keep it longer and the other one has. Because the horizon is a guess, try several. If the answer flips within the range you find plausible, how long you stay matters more than the gap between the offers.
Comparing different terms
A 15-year loan has a higher payment than a 30-year loan for the same amount, because principal is repaid in half the time, and it charges far less interest, because the balance falls faster. Even at the same 6.5% rate on $300,000, the payment is $2,613.32 against $1,896.20, and full-term interest is $170,398 against $382,637. This comparison captures the interest difference. It does not count the other side of the trade-off: a higher required payment, and less cash each month for anything else. Weigh those separately.
Points versus fees
Discount points are prepaid interest: you pay a percentage of the loan amount at closing in exchange for a lower rate, and one point is 1% of the loan. Other lender fees, such as origination or underwriting charges, do not lower the rate. Both count as upfront costs here, but only points buy a lower rate.
Worked example
Two offers on a $300,000, 30-year loan. Loan A: 6.5%, no points, $1,800 in fees. Loan B: 6.125% with 1.25 points and the same $1,800 in fees.
Worked example
- Payments: Loan A $1,896.20, Loan B $1,822.83, so Loan B is $73.37 a month lower.
- Upfront: Loan A $1,800. Loan B $1,800 + 1.25% × $300,000 ($3,750) = $5,550, which is $3,750 more.
- Running totals of upfront costs plus interest cross after 3 years 4 months (payment 40).
- Over 3 years: Loan A $1,800 + $57,515 interest = $59,315; Loan B $5,550 + $54,131 = $59,681. Loan A is lower by $366.
- Over 10 years: Loan A $183,673; Loan B $176,180. Loan B is lower by $7,493.
Same offers, different answers: Loan A costs less if the loan is paid off within 3 years 3 months; Loan B costs less from 3 years 4 months on.
Dividing Loan B's extra $3,750 by its $73.37 lower payment suggests 52 months to break even. The real crossing comes at month 40, because the lower rate also pays the balance down faster, so the interest saving is bigger than the payment saving.
Common mistakes
- Comparing payments only. A lower payment can come from points paid upfront or a longer term. Neither shows up in the payment.
- Comparing full-term totals when you may move sooner. Lifetime interest assumes you keep the loan to the end, which makes upfront costs look small. Use the horizon you actually expect.
- Counting principal as a cost. Totaling every payment makes a shorter term look expensive, though the extra principal stays yours as equity.
- Comparing different loan amounts as if they were the same. A bigger loan pays more interest simply because it is bigger. Enter the same amount for both unless the offers really differ.
- Leaving out financed fees. A fee added to the balance is still a cost. Enter it as a fee so it counts.
Limits of this estimate
- Both loans are treated as fixed-rate, paid exactly on schedule, with no extra payments. For an adjustable rate, see the ARM payment calculator.
- It does not put a value on what you could do with the cash paid upfront or with a difference in payments.
- Tax effects of interest and points are left out; they depend on your own situation.
- Property tax, insurance and mortgage insurance are not included. If one loan carries mortgage insurance and the other does not, add that difference yourself.
- Fees added to the balance are counted as upfront costs, so the small amount of interest charged on them is not included.
Frequently asked questions
How is this different from comparing APRs?
The annual percentage rate (APR) folds certain upfront costs into a yearly rate, assuming you keep the loan for its full term. That spreads the costs thinly. If you sell or refinance early, upfront costs weigh more than the APR implies. Comparing the cost of borrowing over your own horizon removes that assumption and shows the break-even, which an APR cannot.
What if an offer has a lender credit instead of points?
A lender credit lowers your upfront costs in exchange for a higher rate. Subtract it from that loan's fees. Fees cannot go below zero here, so if a credit is larger than the fees, enter zero and remember that loan's advantage is slightly understated.
Should I include title, appraisal and other closing costs?
Only the ones that differ between the offers. A cost that is the same either way adds equally to both loans, so it changes neither which one costs less nor the break-even month.
Why is the break-even sooner than points divided by monthly savings?
The quick division uses the difference in payments. The lower-rate loan also pays down its balance faster, so its interest saving is larger than its payment saving and grows over time. Counting interest, as this calculator does, finds the month the total costs actually cross.
What if I enter a horizon longer than the loans?
The comparison stops at the end of the longer term. A loan that is already paid off adds no more interest, so its cost stays flat while the other keeps growing.
Does a lower monthly payment mean a cheaper loan?
Not necessarily. A lower payment can come from a longer term, which usually means more interest in total, or from points paid upfront. The payment tells you about cash flow; the cost of borrowing tells you what the loan costs.
Next steps: to look at points alone, the points break-even calculator takes these two offers and isolates what the points buy. If one option is replacing a loan you already have, the refinance break-even calculator counts closing costs against your current loan, and the temporary buydown calculator covers offers whose rate is reduced for the first years only.