Question

What are closing costs and how do they affect the effective interest rate?

Answer 1

Closing costs: Closing costs involve all the fees and costs that need to be paid before or at the time of closing. They are typically between 2% and 5% of the loan amount depending on the several factors including the loan type and loan amount in dollars. It includes: Origination fees, credit report fees,Endorsement fee, title insurance, appraisal costs etc.

In choosing to finance closing costs,monthly payments will be higher than if you paid the closing costs out of pocket. In order to help borrowers , lenders use annual percentage rates (APR) which takes into account the closing costs.