The Importance of Considering Closing Costs in Addition to Interest Rates When Negotiating Your Mortgage

The Importance of Considering Closing Costs

Getting a mortgage? There's one aspect to keep on your radar beyond the rate you're offered. Keep reading to learn more.

If you're in the market for a mortgage today, you may be resigned to the idea of paying a lot to borrow for a home. Mortgage lenders haven't exactly had many bargains on offer since rates started creeping upward in 2022. As of this writing, the average interest rate on a 30-year fixed mortgage is 6.9%, according to Freddie Mac.

Don't forget about closing costs

When you think about signing a mortgage, it's natural to focus on trying to snag the lowest interest rate possible. But there's another important factor to look at when evaluating your mortgage offers -- closing costs. Closing costs are the fees lenders charge to finalize a mortgage. They commonly amount to 2% to 5% of the loan amount you're taking on. But that doesn't mean your closing costs won't be higher.

• Always important to shop around
• Consider the total cost including interest rate and closing costs
• Try to get the lender to reduce both the rate and closing costs

Deciding between two potential lenders

Let's say you're stuck between two lenders -- one letting you borrow $200,000 over 30 years at a fixed rate of 6.9% and another giving you that same loan at 7%. At first, the 6.9% offer reads like the better deal. With that offer, you're paying $1,317 a month for principal and interest.

It's always important to shop around when you're looking for a mortgage, so you can compare different offers and negotiate with lenders. But don't just negotiate your mortgage rate itself. Try to get your lender to come down on closing costs, too.