How to Read the Total Interest Percentage on Your Refinance Loan Estimate

When you refinance, the Loan Estimate your lender hands you includes a number that can look alarming at first glance: the Total Interest Percentage, or TIP. It's meant to help you understand the total interest you'll pay over the life of the loan and let you compare that cost across different loan offers. Here's how the disclosure works, why it exists, and how to read it alongside the other numbers on your refinance Loan Estimate.

Why lenders have to show you this number

The Total Interest Percentage isn't a random add-on. The rule places it in the Loan Estimate's "Comparisons" table alongside the 5-year total cost/principal paid-off figures and the APR, stating plainly that these figures exist so you can "compare this loan with other loans". For a refinance specifically, Regulation Z labels the loan a "Refinance" on the Loan Estimate when the credit is not for a purchase under the rule's own terms and instead pays off an existing obligation — as defined under the rule's own terms — that is secured by the same property, regardless of whether your new lender is your current servicer or a completely different company.

What TIP actually measures

The CFPB's own explainer describes it as a number that helps you understand total interest paid over the life of the loan and lets you compare that cost across different loan offers. In the CFPB's own example, a $100,000 loan at a 4 percent fixed rate could show an APR of 4.25 percent alongside a TIP of 72 percent, illustrating how much larger TIP is than APR. That gap can be surprising if you haven't seen the math laid out before.

The CFPB's own example of the gap

In the CFPB's own example, a $100,000 loan carrying a 4 percent fixed interest rate could show an APR of 4.25 percent right next to a TIP of 72 percent. Both figures tell you something useful about what you will pay, even though the gap between them can look enormous.

Worked example: reading TIP on a refinance

Picture a refinance on a fixed-rate schedule similar to the CFPB's own illustration, where a $100,000 loan at a 4 percent fixed rate could show an APR of 4.25 percent alongside a TIP of 72 percent. The $72,000 total-interest figure in the calculation below is a derived illustration showing one way a 72 percent TIP could arise on a $100,000 loan, dividing total interest by loan amount and multiplying by 100, rather than a figure drawn from the CFPB's own published example. That same loan could still show an APR of only 4.25 percent, since the CFPB's example pairs that APR with a TIP of 72 percent on the same $100,000 loan. TIP sits alongside the APR and the 5-year cost and principal paid-off figures in the Loan Estimate's Comparisons table specifically so you can compare this loan with other loans.

• LOAN AMOUNT: 100000
• TOTAL INTEREST: 72000
• Formula: TOTAL INTEREST/LOAN AMOUNT*100
• Result: 72

Illustrative figures from the CFPB's published example, not a specific lender's loan terms.

The three figures in the Comparisons table

Figure	What it measures	Time horizon
APR	One of three figures the rule requires in the Comparisons table, alongside the 5-year figures and TIP, so you can compare this loan with other loans	Not specified
5-Year Total Cost and 5-Year Principal Paid Off	One of three figures the rule requires in the Comparisons table, alongside APR and TIP, so you can compare this loan with other loans	Not specified
Total Interest Percentage (TIP)	Helps you understand total interest paid over the life of the loan and lets you compare that cost across different loans	Full loan term

Each figure in the Comparisons table exists so you can compare this loan with other loans.

How to use TIP when comparing refinance offers

1. Find the "Comparisons" section of each Loan Estimate, where TIP appears as one of three figures the rule requires there, alongside the 5-year total cost/principal paid-off figures and the APR.
2. Read the TIP figure for what it is meant to do: help you understand how much interest you will pay over the life of the loan and let you compare that cost across different loans, rather than treating it as a red flag on its own.
3. Ask your loan officer to walk through how TIP and APR differ for your specific numbers, since the gap between them can look as large as the CFPB's own 4.25 percent APR versus 72 percent TIP illustration.

Key takeaways

• TIP is one of three figures in the regulation's 'Comparisons' table — alongside the 5-year total cost/principal paid-off figures and the APR — that the rule says exist so you can "compare this loan with other loans".
• It helps you understand how much interest you will pay over the life of the loan and lets you compare that cost across different loans.
• The gap between APR and TIP can be large — the CFPB's own example shows a 4.25 percent APR next to a 72 percent TIP on the same $100,000 loan, an illustrative example not tied to any specific lender or term length.
• Regulation Z labels a loan as a "Refinance" on the Loan Estimate when the credit is not for a purchase purpose and instead pays off an existing obligation, as defined in § 1026.20(a), secured by the same property, regardless of whether the new creditor is the original lender or a different holder or servicer of that original obligation.

Frequently asked questions

Why is TIP so much bigger than my interest rate or APR?

The CFPB's example shows how stark that difference can look: a $100,000 loan at a 4 percent fixed rate could show an APR of 4.25 percent alongside a TIP of 72 percent.

Sources

• www.consumerfinance.gov
• www.ecfr.gov
• www.consumerfinance.gov