How to compare mortgage loans
The lowest rate is not automatically the cheapest loan. The real cost combines rate, term, points, origination, and other closing costs.
- Rate vs. points - A lower rate often costs more upfront. Each point is 1% of the loan and typically trims about 0.25% from the rate.
- Term length - A 15-year loan carries a higher payment but dramatically less interest than a 30-year.
- Closing costs - A lower rate with $5,000 more in fees may not pay off if you move or refinance soon.
- Break-even - Divide the extra upfront cost by the monthly savings to see how long the better loan needs to stay in place.
What to look for in a Loan Estimate
- Loan amount - The principal after your down payment.
- Interest rate - Make sure both offers are the same type, fixed or adjustable.
- Points and origination - Listed in the origination charges section, and the easiest place for fees to hide.
- Other closing costs - Appraisal, title, escrow, and recording fees vary by lender and state.
15-year vs. 30-year at a glance
A 15-year payment runs roughly 40% to 50% higher, but total interest can be less than half. The 30-year keeps monthly costs low and leaves room to invest the difference. Neither is universally better; the right answer depends on your cash flow and how long you stay.
Frequently asked questions
How do I compare two mortgage loans?
Compare total cost, not just the rate: principal, interest, discount points, origination, and other closing costs. Two loans with the same rate can differ by thousands in fees. The side-by-side table above puts all of it on one line.
What are discount points and should I pay them?
A point costs 1% of the loan and usually lowers the rate by about 0.25%. Points pay off only if you keep the loan long enough. Divide the point cost by the monthly savings to get the break-even month, then compare it with how long you expect to stay.
Is a 15-year or 30-year mortgage better?
A 15-year loan has a higher payment but roughly half the total interest, often with a lower rate. A 30-year loan keeps the payment low and frees cash for investing or emergencies. The better choice depends on cash flow and discipline, not just the interest total.
Should I compare based on interest rate or APR?
APR includes fees, so it is the fairer comparison between offers. Rate still matters because it drives the monthly payment. Use APR to rank the offers and the monthly payment to check whether you can afford them.
How do origination fees affect total loan cost?
They are paid upfront and increase the effective cost of borrowing. A lower rate with a much higher origination fee can lose to a slightly higher rate with low fees, especially if you sell or refinance within a few years.
Estimates only. Actual loan terms and closing costs come from the lender's Loan Estimate. Confirm all fees before signing.
