5 min read
How to Compare Total Borrowing Costs
Rate is only one line item. Here's how to evaluate what a loan will really cost.
Two loans with the same interest rate can cost very different amounts once you account for points, fees, and how long you'll actually hold the loan. Comparing total cost, not just rate, gives a clearer picture.
Line items to add up
Interest for your expected hold period, origination points or fees, any underwriting or processing fees, and any junk fees that don't map to a clear service. If your project might run long, ask what an extension would cost and factor in that possibility.
Hold period changes the math
Points are a fixed, one-time cost, while interest accrues over your hold period. A loan with higher points but a lower rate can end up cheaper on a longer hold, and more expensive on a short one. Run the comparison against your realistic timeline, not the fastest possible one.
Ask for the full picture in writing
A lender who is confident in their offer should be able to give you a clear, itemized breakdown before you commit. Treat that breakdown as the number to compare across lenders — not just the advertised starting rate.