Closing costs are fees charged by service providers typically involved in the purchase of a home or through a home loan refinance. These service providers are often mortgage providers, escrow companies, title companies, appraisers, credit reporting companies, etc. For the purposes of helping a potential mortgage consumer understand how to best evaluate mortgage companies they would be wise to focus primarily on two things. The first point of focus should be what mortgage related fees are being charged and the second point of focus should be the interest rate offered. In the case of a purchase home loan, the lender will not determine which escrow or title company will be involved so those provider’s fees are not essential to identify when shopping for a home loan. In the case of a refinance those fees are relevant because the mortgage provider will usually recommend companies for escrow and title services.
Mortgage providers make their money by charging loan fees or points or by the rate of interest they charge on the loan. Lenders can make additional money by charging a borrower a higher rate of interest. Understanding how annual percentage rates (APR) are calculated is quite confusing. For this reason, we recommend comparing loan fees charged for a specified rate and use that as a comparison when shopping lenders.