Mortgage Lender Credits Explained

Introduction

Mortgage lender credits reduce your closing costs in exchange for a higher interest rate. You accept a slightly higher rate, and the lender gives you a credit that lowers your cash to close. It's the opposite of paying discount points. See Mortgage Points vs Rate Trade Off, What Are Mortgage Points, and What Are Closing Costs.

Frequently Asked Questions

What are lender credits?

Lender credits are a reduction in your closing costs offered by the lender in exchange for a higher interest rate. They can help reduce cash needed at closing.

How do lender credits work?

You accept a slightly higher rate, and the lender gives you a credit (often a percentage of the loan amount) that reduces your closing costs. The trade-off is a higher monthly payment over the life of the loan.

When do lender credits make sense?

Lender credits can make sense if you're short on cash at closing, plan to sell or refinance soon, or prefer lower upfront costs. Compare the total cost over your expected ownership period.

Are lender credits the opposite of points?

Yes. Points (discount points) are paid upfront to lower your rate. Lender credits are received upfront in exchange for a higher rate. Both are rate/cost trade-offs.