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Should You Finance Closing Costs?

Should You Finance Closing Costs?

Closing costs can add up to a significant sum: Application fees, points, surveys, inspections, title searches… the list can seem to go on and on. If you struggle to come up with the cash for closing costs, it can be attractive to consider financing closing costs as part of the mortgage. Should you?

The answer, of course, is: It depends. First consider whether you can afford to pay cash for closing costs; if you can, doing so will cost you the least amount of money over the long term. If you can't, determine how much more you will pay every month, and how much additional interest you will pay over the term of the loan. For example, if you finance $4,000 in closing costs on a 30-year, 6% loan monthly payments will go up by $23.98, and you will pay a total of $4,633 in interest on that $4,000.

As with any financial decision, evaluate the pros and cons and make the right choice for your individual circumstances.

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