What is the break-even point when comparing mortgages?

The break-even point is the number of months it takes for the monthly payment savings on a lower-rate loan to offset its higher upfront closing costs. If Loan B saves you $133/month but costs $4,000 more at closing, you break even at $4,000 / $133 = 30 months. If you plan to sell or refinance the home before 30 months, you would be better off with the lower closing cost loan even if the rate is slightly higher.

When should I choose a shorter loan term?

A shorter term (15-year vs 30-year) almost always has a lower interest rate and dramatically less total interest, but significantly higher monthly payments. Choose the shorter term if you can comfortably afford the higher payment, plan to stay in the home long-term, and want to build equity faster. A 30-year term makes sense if cash flow is tight, you want lower required payments (with the option to pay extra when able), or you plan to invest the payment difference in higher-returning assets.

Are mortgage points worth paying?

Mortgage discount points (each point = 1% of the loan, typically reducing rate by 0.25%) are worth it if you plan to hold the loan long enough to reach the break-even point. On a $400,000 loan, 1 point costs $4,000 and might save $50/month — a break-even of 80 months (6.7 years). If you plan to stay at least 7–10 years without refinancing, points often pay off. If you might sell or refi sooner, skip the points and keep the cash.

How do closing costs differ between lenders?

Closing costs typically range from 2–5% of the loan amount and include origination fees, underwriting fees, appraisal, title insurance, prepaid interest, and escrow setup. Lenders have discretion over origination and underwriting fees — these vary significantly. Third-party costs (appraisal, title) are more fixed but can be shopped. Always compare the Loan Estimate (LE) document from each lender, not just the rate, since a lower rate with high fees can cost more overall than a slightly higher rate with minimal fees.

Fixed rate vs ARM — which is better?

A fixed-rate mortgage locks your rate for the full term, providing payment certainty and protection against rising rates. An adjustable-rate mortgage (ARM) typically starts with a lower rate for 5, 7, or 10 years, then adjusts annually. ARMs make sense if you are confident you will sell or refinance before the fixed period ends, or if you expect rates to fall. In a high-rate environment, ARMs are attractive for shorter holding periods. Use this calculator to compare the initial ARM rate against a fixed rate to see the monthly and total cost difference.

Should I compare total interest or total monthly payment?

Compare both, but weight your decision by how long you plan to hold the loan. If you will stay 30 years, total cost (interest + closing costs) is the most relevant figure. If you might move in 5–7 years, the monthly payment difference and break-even months matter more because you will not experience the full interest savings of a lower rate loan. For short holding periods, the loan with the lowest closing costs often wins even if the rate is slightly higher.

Loan Comparison Calculator

The Loan Comparison Calculator lets you evaluate two mortgage offers side by side so you can make a confident financing decision. Enter each loan's principal, interest rate, term, and closing costs to instantly compare monthly payments, total interest paid, and total cost of ownership. The calculator also shows a break-even analysis — how many months it takes for the lower-rate loan to offset its higher upfront closing costs.

Loan A

Principal

Loan amount for Loan A

Interest Rate

Annual interest rate

Term

yrs

Loan term in years

Closing Costs

Total closing costs for this loan

Loan B

Principal

Loan amount for Loan B

Interest Rate

Annual interest rate

Term

yrs

Loan term in years

Closing Costs

Total closing costs for this loan

Loan A — Monthly Payment

$2,661.21

Loan B — Monthly Payment

$2,528.27

Loan A — Total Interest

$558,035.59

Loan B — Total Interest

$510,177.95

Loan A — Total Cost (incl. closing)

$562,035.59

Loan B — Total Cost (incl. closing)

$518,177.95

Savings

Loan B saves $43,857.64 over full term

Break-Even Point (Loan B vs A)

31 months (2.6 years)

How to use this calculator

1
Enter Loan A details
Enter the principal (loan amount), annual interest rate, and term in years for the first mortgage offer. Add any closing costs associated with this loan — origination fees, points, title fees, etc.
2
Enter Loan B details
Repeat the same inputs for the second mortgage offer. This is typically the alternative loan you are comparing against — perhaps a different lender, a different term (15 vs 30 years), or a loan with discount points.
3
Review monthly payments
The calculator shows each loan's monthly payment. A lower monthly payment means more cash flow now but often more total interest over time, especially if the loan term is longer.
4
Compare total interest and total cost
Total interest is all the interest you pay over the full loan term. Total cost adds closing costs to total interest, giving you the true cost of each loan if you hold it to maturity.
5
Check the break-even point
If one loan has a lower monthly payment but higher closing costs, the break-even shows how many months until the monthly savings offset those extra upfront costs. If you plan to sell or refinance before the break-even, the higher closing cost loan is not worth it.
6
Choose the better loan
The savings row shows which loan costs less overall and by how much. Use this alongside your expected time in the home to make the final decision.

Formula

Monthly Payment = P × [r(1+r)^n] / [(1+r)^n − 1]
  where r = annualRate / 12 / 100
        n = termYears × 12

Total Interest = (monthlyPayment × n) − principal
Total Cost     = totalInterest + closingCosts

Break-Even Months = (closingCostsB − closingCostsA) / (monthlyA − monthlyB)
  (shown only when Loan B has lower monthly payment but higher closing costs)

The standard amortization formula computes equal monthly payments that fully retire the loan over n periods at monthly interest rate r. Total interest is the sum of all payment interest portions — equivalent to (monthlyPayment × n) minus the original principal. Total cost adds closing costs to give the true out-of-pocket cost if you hold the loan to full term. The break-even formula divides the extra closing costs by the monthly savings; if you stay in the home longer than this many months, the lower-rate loan wins. Example: Loan A — $400,000 at 7.0%, 30 years, $4,000 closing costs. Monthly: $2,661. Total interest: $558,036. Total cost: $562,036. Loan B — $400,000 at 6.5%, 30 years, $8,000 closing costs. Monthly: $2,528. Total interest: $510,206. Total cost: $518,206. Savings with Loan B: $43,830. Break-even: ($8,000 − $4,000) / ($2,661 − $2,528) = 30 months.

Worked Example

Loan A: $400,000 at 7.0%, 30 years, $4,000 closing costs Loan B: $400,000 at 6.5%, 30 years, $8,000 closing costs Loan A Monthly Payment: $2,661.21 Loan B Monthly Payment: $2,528.27 Loan A Total Interest: $557,636 Loan B Total Interest: $510,577 Loan A Total Cost: $561,636 Loan B Total Cost: $518,577 Savings with Loan B: $43,059 over 30 years Break-even: ($8,000 − $4,000) / ($2,661 − $2,528) = ~30 months If you stay in the home longer than 30 months, Loan B wins.

Frequently Asked Questions

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