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Is a lender credit really free closing costs?

A lender credit can offset some closing costs, but it often comes with a higher interest rate. Compare the credit with the payment difference over the time you expect to keep the loan. The question is whether reduced cash upfront is worth the ongoing cost, not whether the word free appears in an advertisement.

By Eric Hamilton · Published September 17, 2026

Find the exchange

Ask for an offer with the credit and a comparable offer without it. Keep loan amount, term, lock period and date aligned. If other assumptions change, the comparison becomes harder to interpret.

Use a simple screen

Hypothetically, a $2,000 credit with a $50 higher monthly payment has a 40 month simple crossover. That is only a screening calculation. Different balances, time value of money and an earlier payoff can change the result.

Respect the cash need

Keeping cash available at closing can have real value. Compare the choice with your reserve goal and other obligations. A higher rate may be an intentional tradeoff, but it should be a visible one.

Check the actual coverage

Ask which costs the credit offsets and what cash remains due. Prepaid items, escrow and outside charges may still require money. Read the final disclosure rather than relying on a no cost label.

Sources and scope

General U.S. education. Program, investor, company, servicer and state requirements vary. Agency references describe their own scope, not universal eligibility. Illustrations are hypothetical, not quotes or approvals.

  1. CFPB: Points and lender credits Accessed September 17, 2026
  2. CFPB: Loan Estimate explainer Accessed September 17, 2026

Approved for publication by Eric Hamilton on September 17, 2026.

General education, not a loan quote, approval or an individual recommendation. Ask the appropriate professional about your situation.

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