Lender credit or no points? When taking the higher rate wins

By DecisionSheet · Updated October 4, 2026 · 2026 tax figures

A lender credit is a discount point run backwards. Instead of paying cash at closing for a lower rate, you accept a higher rate and the lender pays cash toward your closing costs (CFPB). A loan with enough credit to cover all of them is sometimes sold as a no-closing-cost mortgage. Either way the question is the same as for points, with the answer flipped: the credit wins if the loan ends early, and loses if it lasts.

This page runs one credit through the mortgage points break-even calculator, which compares two offers on the same loan. The credit offer is Offer A, entered as negative points; the no-points offer is Offer B.

The example

• The loan. $400,000, fixed rate, 30 years.
• No points. 7.00%, nothing paid or received at closing. Principal and interest: $2,661.21 a month.
• A 1-point credit. 7.25%, with $4,000 (1% of the loan) credited at closing. Principal and interest: $2,728.71, or $67.50 more.
• A 2-point credit. 7.50% with $8,000 credited. Principal and interest: $2,796.86, or $135.65 more.

Both prices are assumptions; real lenders quote their own trade between rate and credit, and the Loan Estimate shows it as a lender credit in the closing costs (CFPB: Loan Estimate). The cash the credit saves is assumed to stay invested at 4%, and so is each month's lower payment on the no-points loan. That keeps both borrowers spending the same money, so the only difference is which loan they chose.

When the credit runs out

The rule of thumb divides the credit by the extra payment: $4,000 ÷ $67.50 is 60 months. That overstates how long the credit lasts. The higher rate also repays principal more slowly, so the credit borrower owes more on the day the loan ends. Counting that, the no-points loan is ahead from month 48; counting the 4% the credit's cash earns in the meantime, from month 53 (4 years 5 months).

A positive figure means taking the credit left you ahead of paying no points; a negative one, behind. Kept 3 years, the 1-point credit is $1,340 ahead. Open this scenario.

The last column treats the credit as what it is, a loan from the lender: $4,000 now, repaid through the higher payment and the higher balance at the end. It is the annual interest rate that borrowing works out to. Over 5 years it is 8.2%; over 10, 20.1%, far above the mortgage rate itself, and the credit is $5,972 behind. Open the 10-year scenario. A negative rate at a short stay means the loan ended before the credit was repaid: the lender paid you to borrow.

A bigger credit, the same break-even

The 2-point credit doubles both the cash and the extra payment, and its break-even is month 53, against month 53 for the smaller one. That is because the example prices each point at the same quarter-point of rate. The size of the credit then scales the stakes, $2,676 ahead at 3 years instead of $1,340 (open it), without moving the month the advantage runs out. A real rate sheet need not price every step the same, so run each credit on offer separately.

Who should take the credit

• Short holds. If you are likely to sell within about four years, the loan ends before the higher rate has cost as much as the credit was worth.
• Expecting to refinance. Borrowing when rates are high and planning to refinance if they fall is the same as a short hold. The credit is kept whatever happens to rates, while points are lost the day the loan is refinanced; see Are mortgage points worth it?.
• Short of cash at closing. A credit can be what makes a down payment or reserves work. Count it as a loan at the rate in the table above, and compare it with other ways of finding the cash.

Anyone expecting to keep the loan for a decade or more is usually better off declining the credit, and possibly buying points instead.

Assumptions and limits

• Both offers are fixed-rate loans on the same amount and term, with interest charged monthly at one-twelfth of the annual rate.
• The credit is cash at closing that would otherwise have been paid out of pocket; it is invested at 4% from closing day. If it only replaces cash you would have borrowed elsewhere, compare it with that loan's rate instead.
• The rate offered for each credit is an assumption, not a lender's quote.
• The break-even month is the first month from which the no-points offer stays level or ahead for the rest of the term. "Ahead by" compares what each borrower has invested minus what each still owes, as if the loan were paid off that month.
• Pre-tax throughout: no mortgage interest deduction and no tax on the invested cash. Other closing costs, property tax and insurance are the same under both offers and are left out.

Method and sources

The model is calculateMortgagePoints in the mortgage points break-even calculator, with the credit entered as negative points on Offer A. Each offer is amortized month by month with the standard fixed-rate payment formula. The no-points offer's lead at a month is its payment saving invested to that month, plus the credit offer's remaining balance minus its own, minus the credit grown at the same return. The credit's cost as a rate is the internal rate of return of the same cash flows, found by bisection. The figures above are the calculator's output on the inputs in the scenario links.

• CFPB: How should I use lender credits and points (also called discount points)?: "Lender credits lower your closing costs up front, in exchange for a higher interest rate."
• CFPB: Loan Estimate explainer: the form that shows a loan's points, credits and other closing costs.

Open this scenario in the calculator

All figures on this page come from the Mortgage Points Break-Even calculator. Change any input there and the numbers update.