How does the interest offset credit work with borrower-paid compensation?

The interest credit cannot offset the closing cost and the loan origination fee.

If you choose borrower-paid compensation, an interest credit received by the borrower would go toward closing cost except for the loan originator’s compensation. 

If your interest credit exceeds the closing costs, the borrower’s principle will be reduced by the excess amount and they will still need to bring the loan origination fee as cash to close.