The first result is a simple cash recovery month. A second view includes the remaining principal at your chosen sale or refinance month, because two rates can produce different balances even on otherwise matching loans.
Use two actual rate offers
Enter each loan's principal, annual note rate, term, points dollars, lender credits and other costs that differ. Get these figures from comparable written quotes issued under consistent lock, occupancy and borrower assumptions.
Do not assume one point buys a standard rate reduction. CFPB explains that the rate tradeoff depends on the lender, loan and market. [1] Use the offered rate with its actual cost, not a points discount invented by the calculator.
A lender credit reduces modeled upfront cost but may accompany a higher rate. Keep the sign clear: points are a cost to you, while an accepted credit offsets eligible costs. Costs common to both offers cancel in a comparison but still belong in your full closing budget.
Choose how long you expect to keep the mortgage. Use a shorter, likely and longer period if your plans are uncertain. A future refinance is a possibility to test, not an outcome the tool can guarantee.
The formula in plain English
The calculator subtracts the lower rate payment from the comparison payment. It divides the extra upfront cost by positive monthly savings to find simple cash recovery.
If the additional cost is $4,000 and the saving is $100 monthly, cash recovery takes 40 months. That explanation is only arithmetic; the worked loan example below uses separately disclosed financing assumptions.
The balance view then compares upfront cost, scheduled payments and outstanding principal at the selected month. This helps distinguish payment savings from the reduction in interest and debt. Taxes and insurance remain outside the points calculation unless different quoted mortgage insurance or other loan charges are entered separately.
A hypothetical pair of offers
Assume both loans are $400,000 with 360 fixed monthly payments. Option A has a 6.5% annual rate and no incremental points cost. Option B has a 6.25% rate and $4,000 additional upfront cost. These are invented offers, not current pricing.
| Measure | ** Option A** | ** Option B** |
|---|---|---|
| Principal and interest | $2,528.27 | $2,462.87 |
| Additional upfront cost | $0 | $4,000 |
| Monthly payment saving for B | , | About $65.40 |
| Simple cash recovery | , | About 61.2 months |
At 36 months, B's unrounded cumulative payment savings are about $2,354.52, less than its $4,000 cost. At 72 months they are about $4,709.04, exceeding that cost by about $709.04. The remaining balance comparison provides additional information rather than treating either payment total as the full economic answer.
When simple break even is not enough
A sale or refinance before the recovery month can leave the upfront cost unrecovered through payment savings. Keeping the loan longer may improve that comparison, but retained cash may have another use and the tool does not assign an investment return to it.
Changing principal or term while changing rate creates a different loan structure. The tool flags that comparison instead of presenting its simple recovery figure as a pure points result. Financed points also add debt and need their own cash and balance treatment.
Tax effects are excluded from the core estimate. Deductibility and timing depend on your facts and tax rules; do not convert the displayed savings into an assumed after tax benefit.
Use the seller credit guide if another party may fund the points, and the 2 1 buydown guide for temporary subsidies. Other comparison tools are in the calculator hub.
Send Dane the two quotes, incremental cost, expected holding period and balance results. Ask for a comparison on matching terms before deciding how much cash to spend on the lower rate.
This calculator gives an estimate only. It is not a loan offer or approval.