# How do closing costs affect the effective interest rate?

**closing costs**into the

**loan**amount. While this will reduce your out-of-pocket

**expenses**, it will also increase your monthly payments and the

**effective interest rate**you'll pay over the term of the

**loan**.

In this regard, is it better to have a lower interest rate or lower closing costs?

Just like lenders can help cover the borrower's **closing costs** by charging a slightly higher **interest rate**, the door swings both ways. Borrowers can essentially buy a **lower interest rate** upfront. To **get a lower rate**, someone buying a home or refinancing has the option to purchase points.

**Finance Closing Costs**If you've already spent a large portion of

**your**savings on

**your**down payment,

**financing your closing costs**over

**the**term of

**your**mortgage might be a good idea. It might also be worth considering if you're refinancing

**your**home or you're applying for a home equity loan.

In this manner, what is effective interest rate on mortgage?

The **effective** annual **interest rate** is the **interest rate** that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the **effective interest rate**, the **effective rate** or the annual equivalent **rate**.

On average, **refinance closing costs** range from 3 percent to 6 percent of your loan amount (again, depending on your location and your lender).