About the Lender Credits Calculator
This lender credits calculator shows whether accepting a slightly higher interest rate in exchange for a lender credit — sometimes called negative points or a no-closing-cost mortgage — is a good deal for you. Enter the loan amount, the base (par) rate, the higher rate on offer, the credit as a percentage of the loan and your estimated closing costs.
Credits cut your cash needed at closing today, but the higher rate means larger monthly payments and slower principal paydown for as long as you keep the loan. The calculator finds the break-even point: the month at which the extra payments plus the higher remaining balance have used up the credit. If you expect to sell or refinance before then, taking the credit wins; if you stay longer, the base rate is cheaper.
Lender credits can only be applied to closing costs (and usually prepaid items) — they are generally not paid out as cash — so the calculator caps the usable credit at the closing costs you enter. Compare offers using the Loan Estimate, where lender credits appear in section J.
With the default inputs, the break-even point is 4 yr. Change any value above to recalculate instantly.
How to use the lender credits calculator
- 1Enter the loan amount and term.
- 2Enter the base rate with no credits and the higher rate that comes with a lender credit.
- 3Enter the credit as a percentage of the loan and your closing costs.
- 4Enter how long you realistically expect to keep the loan.
- 5If you will sell or refinance before the break-even point, the credit is the better deal.
Formula and method
Both loans are amortised with M = P × r(1 + r)^n ÷ ((1 + r)^n − 1). Pc and Pb are the monthly payments with and without the credit, and Bc(m) and Bb(m) are the balances still owed after m months. The true cost of the higher rate by month m is the extra payments you have made plus the larger balance you would still have to repay if you sold or refinanced then.
The break-even month is when that cost first equals the usable credit (the credit capped at your closing costs). The simple break-even — credit ÷ extra monthly payment — ignores the slower principal paydown and so overstates how long the credit stays worthwhile; both are shown.
- Pc, Pb
- Monthly payment with credit / at base rate
- Bc, Bb
- Remaining balance with credit / at base rate
- Credit
- Loan × credit %, capped at closing costs
Worked examples
$350k loan, 1.5% credit for 6.875% vs 6.5%
The credit is $5,250. The higher rate adds about $87 a month and slows principal paydown, so the credit is used up after 48 months (4 years) — sooner than the simple 60-month estimate. Keeping the loan 5 years makes the credit about $1,349 more expensive than the base rate.
Planning to move in 3 years
A 2% credit is worth $8,000 and the higher rate costs about $131 more a month. The credit lasts 48 months, so if you move after 3 years you come out roughly $1,980 ahead.
Credit larger than closing costs
A 3% credit would be $9,000, but only $6,000 of closing costs exist, so just $6,000 is usable — the rest is lost while you still pay the higher rate.
Frequently asked questions
What are lender credits?+
Lender credits are money a lender gives you toward closing costs in exchange for accepting a higher interest rate. They lower your upfront cash but increase your monthly payment and total interest for as long as you keep the loan.
Are lender credits the same as negative points?+
Yes. Discount points are paid to lower your rate; lender credits (negative points) work in reverse — you take a higher rate and the lender pays part of your closing costs. Both appear on page 2 of the Loan Estimate.
When do lender credits make sense?+
They make sense when you expect to sell, refinance or pay off the loan before the break-even point, or when you are short on cash for closing. If you plan to keep the loan for many years, the lower rate usually wins.
Can I get lender credits as cash back?+
Generally no. Lender credits can only be applied to your closing costs and prepaid items. Any amount above those costs is usually lost, so do not take a bigger credit than you can use.
Is a no-closing-cost mortgage really free?+
No. The closing costs are paid through a higher rate (lender credits) or rolled into the loan balance. You still pay them over time, which is why the break-even point matters.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.