Lender Credits Explained: Trading Rate for Lower Closing Costs

Lender credits (also called negative points) are the inverse of discount points. Instead of paying upfront to lower your rate, you accept a higher rate in exchange for the lender paying some or all of your closing costs. This is the mechanism behind 'no-closing-cost' mortgages.

How Lender Credits Work

Every 0.125% rate increase generates roughly 0.25–0.5% of the loan amount in lender credits (varies by lender and market). On a $400,000 loan: accepting a rate 0.375% above par might generate $3,000–$4,000 in credits — enough to cover most or all closing costs.

Lender Credits on Your Loan Estimate

Look for lender credits in the 'Origination Charges' section of your Loan Estimate (Section A) — they appear as a negative number. A credit of ($3,500) means the lender is applying $3,500 toward your closing costs.

When Lender Credits Make Sense

• You have limited cash and need every dollar for down payment
• You plan to refinance or sell within 3–5 years (before the higher rate becomes costly)
• You're in a declining rate environment and expect to refinance anyway
• Your DTI is tight — preserving cash gives flexibility for unexpected costs after closing