Quick answer: Compare mortgage offers using the same loan assumptions and the complete Loan Estimate. The lowest advertised interest rate is not automatically the lowest-cost choice. Points, lender credits, loan fees, mortgage insurance, lock period, cash to close, and the time you expect to keep the loan can change the answer.
Make the quotes comparable
Ask each lender to price the same loan amount, purchase price, down payment, loan program, term, occupancy, property type, credit profile, and estimated closing date. Quotes should use the same lock period and be produced at roughly the same time because mortgage markets can move during the day.
A 30-day lock should not be compared directly with a 60-day lock. An FHA quote should not be compared with a conventional quote without accounting for mortgage insurance and upfront premiums. A rate discussed over the phone is not enough. Ask for the numbers in writing.
Understand rate, APR, points, and credits
The interest rate determines the interest charged on the loan and helps calculate principal and interest. The annual percentage rate, or APR, reflects the rate plus certain finance charges. APR can be useful when comparing similar loans, but it is not a substitute for reviewing every fee and it assumes a particular loan life.
Discount points are upfront fees paid in exchange for a lower rate. One point generally equals one percent of the loan amount, but it does not produce a fixed amount of rate reduction. Lender credits reduce eligible upfront costs in exchange for a higher interest rate. Both are pricing choices.
Calculate the break-even period
When one option requires more money upfront, divide the additional cost by the monthly savings. If a lower-rate option costs $6,000 more and saves $150 per month, the simple break-even period is 40 months. The option begins producing net savings only after that point.
Compare the break-even period with how long you realistically expect to keep the mortgage, not merely how long you expect to own the home. Selling, refinancing, paying off the loan, or converting the property can shorten the relevant timeline. Also consider the value of retaining cash for emergencies, repairs, or other goals.
Use the Loan Estimate section by section
Page 1 shows the loan terms, projected payment, and estimated cash to close. Page 2 breaks down loan costs and other costs. Section A generally contains origination charges, including points. Section B includes services the borrower cannot shop for. Section C includes services the borrower may be able to shop for. Section J shows lender credits, and the Calculating Cash to Close table explains how the estimate is assembled.
Page 3 includes comparison information such as APR and total interest percentage. Confirm that the rate-lock box at the top of Page 1 accurately shows whether the rate is locked and the expiration date.
Separate lender-controlled and property-related costs
Property taxes, homeowners insurance, prepaid interest, escrow deposits, title charges, and recording fees may differ between estimates because the lenders used different assumptions. That does not always mean one lender is more expensive. Focus first on the charges and credits that actually vary by lender, then correct the common assumptions for a complete cash-to-close comparison.
Ask why any figure differs. A very low insurance estimate can make a payment look better without changing the actual premium you will pay. A missing association fee or unrealistic tax figure creates the same problem.
Do not ignore execution and communication
Price matters, but the loan also needs to close correctly and on time. Ask who will manage the file, how often you will receive updates, how quickly questions are answered, and whether the lender has experience with your program and property type. A missed financing deadline can cost more than a small pricing difference.
Questions to ask every lender
- Is this rate locked, and for how long?
- How many points are included?
- Are there lender credits, and what rate tradeoff created them?
- What loan program and mortgage-insurance structure are assumed?
- Which fees can change and which services can I shop for?
- What is the simple break-even period between the options?
- What could cause this estimate to be revised?
The CFPB provides a detailed Loan Estimate explainer and a guide for comparing and negotiating loan offers.
Run scenarios with the mortgage calculators, review whether points make sense, or ask Jeff to compare written estimates.
Educational information only. Mortgage pricing and costs depend on the complete application, property, market, and lock terms. This is not a rate quote or commitment to lend.