Amortize Closing Costs or Pay the Points?By Tim Worstall
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It can be confusing working out whether to amortize the closing costs on your mortgage or whether to pay the points.
You have a choice when you pay the closing costs--pay the points or choose to amortize them.
As often happens, you can get to the point of completing your mortgage and you're thinking about the costs of decorating, repairing, and furnishing the house. You really don't want to have to find 3% of the total loan value to pay closing costs. If you can, great, but an alternative is to amortize them over the life of the loan. This option is referred to as "reverse points" and works as follows. The interest rate is 6% if you pay the points. You can agree to pay 6.5 % (just an example), however, and this creates reverse points. Because you are making a higher payment each month the mortgage company can pay your closing costs for you and you amortize them, or pay them back over time. In effect, you add closing costs to the amount you borrow as part of your mortgage.
About the Author
Tim Worstall has a degree in finance and accountancy and writes extensively on matters economic and financial.
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