How do I compare two offers if one has a lower rate but higher fees?

How do I compare offers with different rates and fees?

You have two loan offers with different rate and fee structures, and you want to figure out which costs less over time. One lender offers a lower interest rate but charges higher upfront fees, while the other has a higher rate with lower fees.

The interest rate affects your monthly payment and total interest over the loan term. Higher upfront fees increase your closing costs but don't change your monthly payment. To compare accurately, calculate the total cost of each loan over the time you plan to stay in the home. Add the upfront fees to the total interest you'd pay over that period.

Check the Loan Estimate from each lender. Look at Section A for the interest rate and monthly payment, and Section B for the origination charges and total closing costs. Many people also calculate the break-even point—how long it takes for the monthly savings from the lower rate to offset the higher upfront fees.

Share both Loan Estimates with each lender and ask them to walk you through the total cost comparison for your expected timeline. They can show you exactly when the lower-rate option becomes more cost-effective.