Understanding Closing Costs

Points are typically the largest cost associated with getting a home mortgage. Each point represents one percent of the mortgage balance, or $1,000 for each $100,000 financed. Unlike other costs, points can not be financed into your payment and must be paid with cash at the close of escrow. The most common type of points are discount points. These are fees paid by the borrower to reduce the interest rate of the loan. The more points you agree to pay upfront, the lower your interest rate will be. Deciding whether or not to pay points depends on many factors including the amount of cash you have available after making the down payment, the amount of the discount and the length of time you plan on owning the house. You'll have to take a good look at the costs and payment schedule of different types of loans to decide which one is best for you. If you do not have extra cash to pay points, but still want to lower your interest rate, there's still hope. Some sellers are willing to pay the discount points or other closing costs in order to sell the property. It's worth asking, even if you have the money to pay. If you're being moved by your company, your relocation package may have a provision to help you reduce you monthly payment.