Mortgage ToolkitHow to compare mortgage loans
Comparing two loan offers by rate alone is one of the most common mistakes buyers make. The number that actually matters is the total cash you'll pay — principal, interest, closing costs, points, and any recurring extras like PMI or HOA dues — over however long you plan to keep the loan. A loan with a slightly higher rate but much lower fees can easily beat a "cheaper" loan once you add everything up, which is exactly why this calculator computes a full cash-outlay total for each side rather than just showing the rate.
Once you have both totals, the calculation above the fold generates a specific recommendation with reasons — not a generic "compare carefully" message. It also runs a loan health score across five factors (rate, closing costs, total cost, monthly payment, and payoff speed) so you can see exactly where each loan is winning or losing, not just the final verdict.
Interest rate vs. APR
Your interest rate is the cost of borrowing the principal. The APR (annual percentage rate) folds in certain lender fees and closing costs, spread across the loan term as an annualized rate — which is why APR usually runs slightly higher than the quoted interest rate. When two lenders quote similar rates but different fees, comparing APR gives you a more apples-to-apples number, though it still assumes you keep the loan for its full term, which most people don't. That's part of why this calculator's break-even analysis matters more than APR alone: it tells you exactly how many months you need to stay in the loan before the lower-rate option actually pays for its higher fees.
Why closing costs matter
A loan with a lower rate but $3,000 more in closing costs isn't automatically the better deal — it depends on how long it takes the monthly savings to recover that gap. This calculator's break-even analysis handles that calculation directly: it divides the additional upfront cost by the monthly savings to show exactly how many months until the cheaper-upfront loan and the lower-rate loan cost the same amount. If you plan to sell or refinance before that break-even point, the loan with lower closing costs is usually the better choice even if its rate is a bit higher. For a full breakdown of every fee that shows up at closing, see Closing Costs Explained.
Fixed vs. adjustable mortgage
Most direct loan comparisons — including the two loans you're comparing here — assume fixed rates for the full term, which keeps the payment predictable and makes an apples-to-apples comparison possible. An adjustable-rate mortgage (ARM) starts with a lower introductory rate that later adjusts based on a market index, which can make an ARM look artificially cheap in a simple rate comparison. If one of your two offers is an ARM, model its worst-case adjusted rate separately using the mortgage calculator rather than comparing its introductory rate directly against a fixed loan.
When a lower rate isn't actually cheaper
Three situations commonly flip the outcome: higher closing costs on the lower-rate loan (covered by the break-even analysis above), a longer loan term that lowers the monthly payment but increases total interest, and mortgage points that add upfront cost in exchange for a lower rate. On points specifically, the math is nearly identical to the closing-cost break-even calculation — you're paying more now for a lower cost later, and the question is always how long you need to hold the loan to make that trade worthwhile. See Should You Pay Mortgage Points? for the detailed break-even math on points specifically, or open the Advanced section under either loan above to add points directly into this comparison.
Comparing against today's market
Each loan panel above shows how your entered rate compares to this week's national average for that term, sourced from Federal Reserve data. If your rate is meaningfully above average, it's worth checking whether today's mortgage rates have moved since you got your quote, or whether a refinance might be worth exploring once you've closed — the mortgage refinance calculator runs that exact break-even math against your current loan.
Once you've picked a loan, two follow-up questions are worth running through the other calculators: how extra payments would change your payoff timeline with the mortgage overpayment calculator, and the full month-by-month principal/interest split with the amortization calculator. If you're still deciding whether to buy at all, the rent vs buy calculator factors your chosen loan terms directly into that decision.