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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127715  
Subject: Re: Closing costs in with loan?? Date: 7/17/2001 11:47 AM
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Hi jekkel,

I am working on mortgage stuff this week (ack my first) and noticed that the broker has put the closing cost in with the loan. I have the money to pay closing costs and then some. Is there any benifit to including the closing with the loan that I am not aware of?

I think so, actually...

How much is that liquid cash in your checking account worth to you? I would offer that it is worth whatever you would pay to use it if you didn't have access to it (via credit card, loan, etc.), multiplied by whatever it could gain you (via investment returns, emotional returns, etc.)

The money taken from your mortgage will cost you your regular interest rate, discounted by your interest tax deduction rate... so a 7% interest rate really costs around 5%.

You're relatively better off, financially anyway, by paying your closing costs out of your equity rather than allowing your home equity to swallow your cash. Put your cash in a more productive place, like your investment accounts.

My preference is to just pay closing out of my checking acct, assuming that adding it to my loan makes my loan bigger..

Your owned real estate will appreciate (grow) approximately equal to inflation, 3-5%, regardless of how much equity you have in it or not. Contrary to some opinions, your returns are the same whether you pay down the mortgage or not... so putting your money into your home equity does NOT offer any guaranteed returns....

To the contrary... since cash in your home makes no difference in the effective returns, every dollar you put into your home has not only been neutered from effective growth, it is actually LOSING VALUE from inflation.

That same dollar can be released from the financial prison of your slow-boat real estate for somewhere between 3 1/2% to 6% real interest costs, and invested into accounts that EARN you a real, after-tax effective 8% (MINIMUM) to 20%, or MORE over a mortgage length period of time.

Financially speaking, over the long run, how could THAT ever not make sense?

All the best,
Dave Donhoff
Lic. Mortgage Broker
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