What Are Mortgage Closing Costs?
Mortgage closing costs are various expenses paid by the borrower to get a mortgage to purchase a property. Closing costs also must be paid to refinance an existing mortgage. These costs can add up to hundreds or thousands of dollars.
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Examples of Mortgage Closing Costs
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Examples of typical mortgage closing costs include (1) a loan origination fee, which compensates the lender for making the loan, (2) title insurance, which protects the owner's and lender's ownership interest in the property from claims by others, and (3) an appraisal fee, which pays for a valuation of the property by a licensed appraiser.
Other Mortgage Closing Costs
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Other mortgage closing costs may include a credit report/score, deed or document recording fee, attorney's or closing agent's fees, mortgage insurance premiums, transfer taxes and prepaid interest on the loan. All of these fees should be disclosed to the borrower on the good-faith estimate and the settlement statement, which is called a HUD-1.
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Points Lower Borrower's Interest Rate
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Some borrowers also choose to pay points at closing to buy-down the interest rate on their mortgage. A point is equal to 1 percent of the loan amount. For example, one point on a $300,000 loan would be $3,000. The amount of interest rate reduction that can be bought for a set number of points depends on the prevailing market rate at the time of the loan origination.
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References
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