Loan Estimate: How do I compare 2 or more mortgage offers?

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While lenders fight it out to get your business, here's how you choose the winner.

The "Comparisons" section on Page 3 makes it easy to compare 2 or more loan offers at once. See how much principal you would pay off on each of the offers within 5 years. 

Two numbers to pay attention to: the total loan cost and the equity after 5 years.

These "in 5 years" numbers are key to picking the best deal. Let the fight begin.

The Loan Estimate was designed to make it easy for borrowers to compare loan offers. The document contains a shortcut to make comparisons especially simple: the 5-year cost.

On Page 3, the top item in the "Comparisons" section details:

  • The total mortgage-related payments you will make in the first 5 years -- closing costs plus the total principal, interest and mortgage insurance you will pay in the first 60 months.
  • How much principal you will have paid off in the first 5 years. Unless the home's value falls, this is the amount of equity you will accumulate in those 5 years.
Loan Estimate form, page 3

Page 3 of Loan Estimate form

These 2 numbers -- total loan costs and equity accumulated in 5 years -- are useful in comparing mortgage offers. The Consumer Financial Protection Bureau intended for borrowers to focus on those numbers.

The Loan Estimate was refined through several rounds of focus-group testing. From the start, participants identified "the loan that showed more principal paid off in 5 years as 1 of their choice factors," according to the focus-group report.

Besides the "in 5 years" numbers, 2 other figures appear in the "Comparisons" section on Page 3:

  • The annual percentage rate, or APR, is a calculation that results from adding closing costs to the total interest paid over the life of the loan.
  • The total interest percentage, or TIP, represents the total interest paid over the life of the loan as a percentage of the loan amount. For example, if you borrowed $100,000 and then paid $82,000 interest over the next 30 years, the TIP would be 82%.

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