How to read a Loan Estimate for a refinance

What the Loan Estimate is

A Loan Estimate is a standard form. It shows the terms of a loan and the costs you can expect to pay to close it. Your lender must give you a Loan Estimate within three business days after it receives your application. Read it before you accept any offer.

The form has three pages. Page 2 lists the closing costs. Page 3 shows the APR. This guide explains page 2 first.

Page 2, sections A to J

Page 2 groups the closing costs into lettered sections. Each section has a name that tells you what it covers. Some sections add up to a total. Read the sections in order, and check each total against the amounts printed on the form.

A. Origination Charges. This section includes points. Points appear as “% of Loan Amount (Points).”

B. Services You Cannot Shop For. The name explains this section. You cannot choose the provider for these services.

C. Services You Can Shop For. You can compare providers for these services.

D. Total Loan Costs (A + B + C). This total adds sections A, B, and C together.

E. Taxes and Other Government Fees. This section lists taxes and fees that government offices charge for the loan.

F. Prepaids. This section lists amounts you pay in advance. RefiROI does not count this section. The section “What RefiROI counts” below explains why.

G. Initial Escrow Payment at Closing. This section is the escrow deposit you pay at closing. RefiROI does not count this section either.

H. Other. This section lists other costs that do not fit in the sections above.

I. Total Other Costs (E + F + G + H). This total adds sections E, F, G, and H together.

J. Total Closing Costs. This section gives the total closing costs. It includes the line “Lender Credits.” The Lender Credits line reduces your closing costs.

What RefiROI counts

RefiROI counts sections A, B, C, E, and H. It also subtracts the Lender Credits line in section J. The result is the upfront cost of the refinance.

RefiROI does not count sections F and G. Those amounts are your own money. They pay for interest, taxes, and insurance that you pay anyway.

Points are part of section A, so the calculator does not ask for them a second time in Loan Estimate mode. If you add the fees to the loan instead of paying them in cash, RefiROI still counts them. Fees added to the loan also raise your balance, so they add interest over time.

Here is an example. Section A is $1,995. Section B is $650. Section C is $1,200. Section E is $350. Section H is $0. The Lender Credits line is $400. With these amounts, the upfront cost is $3,795.

Your own Loan Estimate will show different amounts. Use your own numbers in the calculator.

The APR and the note rate

Page 3 shows the APR. The APR includes some fees. Because of those fees, the APR is higher than the note rate when you pay fees.

The note rate is the interest rate on the loan. The APR and the note rate are different numbers, so do not treat them as the same.

How to compare two Loan Estimates

You can compare two offers in the calculator. Follow these steps.

Add the first Loan Estimate as an offer in the calculator.
Switch that offer to “Loan Estimate” mode.
Add the second Loan Estimate as an offer, and switch it to “Loan Estimate” mode too.
Compare the results for the two offers.

Want to see your own numbers? Open the calculator. Your numbers stay in your browser.