Mortgage-Related Closing Costs

Mortgage-related closing costs generally are costs associated with your loan application. They vary, but here are some of the most common ones:

-- Loan origination fee: This fee covers the administrative costs of processing the loan. It may be expressed as a percentage of the loan (for example, 1 percent of the mortgage amount).
-- Loan discount points: These points are additional funds you pay the lender at closing to get a lower interest rate on your mortgage. Typically, each point you pay for a 30-year loan lowers your interest rate by .125 of a percentage point. If the current interest rate on a no-point, 30-year mortgage is 7.75 percent, paying one point would lower the interest rate to 7.625. Each point is one percent of the mortgage (for example, if your mortgage is $200,000, one point equals $2,000).
-- Appraisal fee: This fee pays for the appraisal, which the lender uses to determine whether the value of the property secures the loan should you default. The home buyer usually pays this fee. It may appear on the settlement form as "POC," or "paid outside closing."
-- Credit report fee: This covers the cost of the credit report, which the lender uses to determine your creditworthiness.
-- Assumption fee: This fee is charged if you take over the payments on the seller's existing loan. It may range from hundreds of dollars to one percent of the loan amount.
-- Prepaid interest: You are charged interest when you borrow money from a lender, and you will pay interest on the mortgage amount from the date of settlement to the beginning of the period covered by the first monthly mortgage payment. At closing, you may be required to pay in advance the interest for the period.
-- Escrow accounts: Also called reserves, these accounts are required if your lender will be paying your homeowner's insurance and property taxes. Your lender sets up the escrow account by adding the cost of the insurance and taxes to your monthly mortgage payments. It is kept in reserve until the bills are due. The bills are sent directly to your lender, who makes the payments for you.

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