Loan Comparison Calculator

Two loan offers for the same amount can differ by tens of thousands of dollars over the full term once you account for rate, fees, points, and length. The headline interest rate alone is rarely enough — a half-point lower rate can be completely cancelled out by an origination fee, and a smaller monthly payment usually means a longer term and far more interest paid in total.

A side-by-side comparison forces every offer onto the same basis: monthly payment, total interest, and total cost including upfront charges. That is the only fair way to pick the cheaper loan, especially when the offers have different structures.

Enter the loan amount, annual interest rate, and term in years for each loan. The calculator solves the standard amortization formula to produce the fixed monthly payment, then multiplies by the number of payments to show total cost and total interest. Compare the two outputs directly to see which loan costs less per month and which costs less overall.

For an apples-to-apples comparison, fold any origination fees or points into the loan amount (or subtract them from the monthly savings on the cheaper offer) before reading the totals. The worked example below walks through that adjustment.

M = P × r × (1 + r)^n / ((1 + r)^n − 1)

P = principal (loan amount)
r = monthly interest rate = annual rate / 12
n = total number of payments = years × 12
M = fixed monthly payment

Total interest is simply M × n − P. Total cost of ownership adds upfront fees and points to that interest figure.

Two offers for a $200,000 mortgage over 30 years. Loan A has no fees but a higher rate; Loan B has a lower rate but charges $3,000 in origination fees at closing.

Loan A monthly = 200000 × 0.005417 × 1.005417^360
                 / (1.005417^360 − 1)              ≈ $1,264.14

Loan B monthly = 200000 × 0.005000 × 1.005000^360
                 / (1.005000^360 − 1)              ≈ $1,199.10

Monthly savings on Loan B = 1264.14 − 1199.10     = $65.04
Break-even on $3,000 fee = 3000 / 65.04           ≈ 46.1 months (~3.8 years)

Loan B is cheaper by about $20,400 over the full 30 years and saves $65 per month. But you only recover the $3,000 fee after roughly 46 months. If you plan to refinance, sell, or pay off the loan within the first ~4 years, Loan A wins despite the higher rate.

The interest rate is the cost of the principal alone. The APR bundles the rate together with most lender fees — origination, discount points, mortgage insurance, certain closing costs — into a single annualised number. Two loans with the same rate but different fee structures will show different APRs, and the lower APR is almost always the cheaper loan if held to maturity.

Caveats: APR assumes you keep the loan for the full term. If you plan to pay it off early, the APR overstates the impact of upfront fees and you should fall back to a break-even analysis like the one above.

Discount points are prepaid interest. One point costs 1% of the loan amount and typically reduces the rate by about 0.25%, though the exact buy-down ratio varies. The decision is purely about how long you'll hold the loan:

break_even_months = point_cost / monthly_savings_from_lower_rate

# Example: 1 point on $300k = $3,000 cost
# Rate drops 0.25% → monthly payment drops ~$48
# Break even = 3000 / 48 ≈ 63 months ≈ 5.2 years

Origination fees, application fees, underwriting fees, and processing fees all behave the same way mathematically — they are upfront costs that need to be recovered through the loan's interest savings or convenience.

A prepayment penalty is a fee the lender charges if you pay off the loan early. It can be a flat amount, a percentage of the remaining balance, or a number of months of interest. It is most common on subprime mortgages, some auto loans, and private student loans; conventional US mortgages and government-backed loans (FHA, VA, USDA) generally cannot charge them.

Always read the loan estimate carefully. A loan with a slightly higher rate but no prepayment penalty often beats a cheaper loan with one if there is any chance you'll refinance or sell.

Use this checklist to make sure you're comparing every relevant number, not just the headline rate:

What is the difference between APR and interest rate?

The interest rate is the cost of borrowing the principal, expressed as a yearly percentage. APR (Annual Percentage Rate) bundles the interest rate together with most lender fees — origination charges, discount points, and certain closing costs — into a single annualised number. APR is almost always the better apples-to-apples comparison between two loan offers because it captures fees the headline rate hides.

How do discount points affect my effective rate?

One discount point costs 1% of the loan amount and typically shaves about 0.25% off the interest rate, though the exact reduction varies by lender. Points are prepaid interest, so they only pay off if you keep the loan past the break-even period. Divide the point cost by the monthly savings to find how many months it takes to recover; sell or refinance before then and you lose money.

Why doesn't a lower monthly payment mean a cheaper loan?

Stretching the same balance over a longer term shrinks each payment but multiplies the number of payments, so total interest grows substantially. A 30-year loan can cost two to three times more in interest than a 15-year loan at the same rate, even though the monthly payment looks more affordable. Always compare total cost (monthly payment times months plus fees), not the monthly figure alone.

What is a prepayment penalty and when should I worry about it?

A prepayment penalty is a fee the lender charges if you pay off the loan early — either by refinancing, selling, or making large extra payments. It's most common on subprime mortgages, some auto loans, and certain commercial loans. If you might refinance or sell within the first three to five years, a loan without a prepayment penalty is usually worth a slightly higher rate.

Should I choose a variable-rate or fixed-rate loan?

Fixed-rate loans lock in the rate for the full term, giving predictable payments and full protection against rising rates. Variable (adjustable) rates start lower but can climb when benchmark rates rise, increasing your monthly payment. Variable makes sense if rates are expected to fall, you'll pay off the loan quickly, or you can comfortably absorb the maximum payment after the cap.

How is an origination fee built into the loan math?

An origination fee is usually quoted as a percentage of the loan amount (commonly 0.5%-1.5%) and is either paid upfront at closing or rolled into the principal. If rolled in, you pay interest on the fee for the entire term, so a $3,000 fee on a 30-year mortgage at 6% costs roughly $6,500 in extra interest on top of the fee itself. Always check whether the quoted rate already accounts for the fee.

What is the total cost of ownership for a loan?

Total cost of ownership is the sum of all payments plus upfront fees minus any prepayment value — essentially every dollar that leaves your pocket because of the loan. It includes the principal, all interest paid, origination and processing fees, points, and any required insurance or guarantor charges. Comparing total cost rather than rate or monthly payment is the only way to know which offer is genuinely cheaper.