Cash now,
rate forever.
A lender credit is the lender paying part of your closing costs in exchange for a slightly higher rate. Smart trade for short stays. Bad trade for long ones. Run the break-even before you sign.
Lender credits
in four sentences.
What it is.
The lender pays some of your closing costs. In return, your interest rate goes up by 0.125–0.5%. The credit is real cash off the closing table; the trade-off is a higher monthly forever.
What 1 point buys.
1 point ≈ 1% of loan. As a credit (negative point), the lender gives you ~$3K on a $300K loan in exchange for typically ~0.25% rate increase.
When it wins.
Short tenure. If you'll refi or sell within 3-5 years, the upfront cash savings outpace the higher monthly. Math: divide credit by monthly difference = your break-even month.
When it loses.
Long tenure. Stay 7+ years and the higher rate compounds past the credit. The math flips. Most fixed-rate buyers stay 7-10 years.
Run the
break-even.
- Loan amount
- $300,000
- Standard rate
- 6.50%
- With $4,500 lender credit
- 6.75%
- Monthly P&I (standard)
- $1,896
- Monthly P&I (with credit)
- $1,946 (+$50/mo)
- Break-even month
- $4,500 ÷ $50 = 90 months · 7.5 years
- Stay <7.5 years?
- Credit wins.
- Stay >7.5 years?
- Standard rate wins.
Four traps
in the credit pitch.
Taking the credit because cash is tight.
If you can't close without the credit, that's a sign your reserves are too thin. Talk to your LO about DPA or a smaller loan first.
Forgetting the credit only covers LENDER costs.
Lender credits typically don't cover prepaids (taxes, insurance escrow, prorated interest). Read the LE line by line.
Stacking credits without running break-even.
Multiple negative points can add up. The combined rate hike compounds. Run the actual math, not the sales pitch.
Credits + DPA confusion.
Lender credits and DPA programs are different tools. DPA is third-party assistance; lender credit is the lender re-pricing your loan. Both can be used, but they're independent.
Short stay or long?
Get the right answer.
Five minutes. We map your timeline and run the break-even on credits, points, and the standard rate. Numbers, not vibes.