No. of Recommendations: 4
Hi Tom,

I'm considering refinancing... and I am curious why I have to pay all so many costs just for a refinance. I know I can find no-cost loans but those seem to overcompensate with overly high interest rates.

$350- Appraisal. I know I can probably get this waived if I refinance through the company that I currently hold my loan with (Countrywide).

Not just Countrywide, but many (most) lenders... however it depends on what YOUR risk profile is, not just the property. Some things the lender considers when determining if they want a new appraisal (and what type of appraisal, which differs in price as well,);

1) Are you refinancing rate & term, or cash-out,
2) How much liquid reserves do you have?
3) What are your proposed debt-to-income ratios.

Yes... all these non-property things DO determine whether the lender will waive the appraisal requirement.

$525 "Settlement or closing fee"- I assume this goes to the Title/Escrow agent... seems like a lot for an hour's worth of work.

Yes and no...
1) The escrow companies carry a great deal of risk because they have to accurately clear everything and make sure all appropriate parties get their funds. If they screwed up, or some of the other parties screwed up, and the law allowed them to just say "oh well, tough luck," then escrow would costs maybe $50. As it is they need to carry significant risk, and insurance against all types of screw ups for the various parties.
2) The service is basically pretty simple... thus it is very VERY competitive... thus you can rest assured the free market forces the price to the bone-minimum the business will accept.

$381 Title Insurance- lender's coverage.
$1,341 Title Insurance- owner's coverage.
This title insurance seems the most obnoxious. I already bought 30 years worth of title insurance a couple of years ago when I got the first mortgage. All the work of doing the title search has already been done. I would think that I should just pay a small "transfer fee" to move the title insurance to the new loan, and maybe a small "extension fee" for the two extra years of loan that will be added.

Actually, you didn't buy "30 year's worth." You bought one day's worth.. or even perhaps just one moment's worth.

You see, title insurance simply says that, to the best of the title company's research (and insured if wrong,) AT THAT MOMENT IN TIME your property title is clear of any encumbrances or liens.

If you got your loan closed, and went out the next day and hired "Big Time Hollywood HotTub" to install a jacuzzi for $35,000, the contractor will often immediately place a mechanic's lien against your home (before even beginning the work,) to make sure he gets paid for the service and supplies he's about to deliver to you.

Your title is now no longer clear in the position BEHIND your lender.

Due to our legal system, if you want to refinance, you would pay off the old loan, which eliminates the position of the old lien for the original loan agreement. Because Big time Hollywood is next in line, the new loan would fall behind in claims should you default on your new mortgage.

Say you paid Big Time in full, but they never lifted the lien. If you refi'd without a title search (and insurance) and then defaulted, Big Time could come back and take first claim in front of the lender.

(Caveat... JAFO and SQUAWK may point out I'm full of beans, that a court would find that BigTime has no rights... and they may be right! But in the meanwhile the lender would have to waste all kinds of legal time and expense when they could eliminate the risk up front by searching and insuring 100% of the titles for their loans.)

Businesses know that the cheapest legal costs are their preventative legal costs.

I'm curious if there are any options for avoiding or decreasing these fees.

Pay off your mortgage?

Can I waive new title insurance?

Maybe if BigTime Hollywood HotTubs funds your loan...

Can I find a title insurance company that will offer lower rates for me, and use that with any lender?

Title, like escrow servoces, is a pretty competitive field. Nonetheless, there are dozens of choices to shop amongst. You might save a six-pack worth if you spend some time at it.

Are there lenders that are known to affiliate themselves with title companies offering low title insurance rates that I should be seeking out? -Tom

It's entirely the borrower's discretion for 3rd party service providers. I'm not aware of any lenders who require or even recommend one service provider over any other (unless they're affiliated... and then it's usually MORE expensive rather than cheaper.)

If closing costs seem like a big, fat, hairy, wasteful drag to you, I agree entirely!

I'm working on the designs for a "perpetual mortgage" product that would offer fixed rate terms just like today's products, but would only "pay off" if you voluntarily chose to do so. Therefore the lien position would never need to be reset, and all the legal falderall you're hating would almost never have to be revisited.

You could ratchet rates down when they dropped, and keep them there as long as you determined in advance. You could voluntarily pay the principal down, thereby lowering your monthly cash-drain, OR withdraw equity funds for projects, improvements, college, investments, etc. if you can afford greater payments and have better uses for your funds.

All with no new title reports or escrow-closing services necessary, limited appraisals only in the case of dramatic cash-outs, few or no credit reports, limited re-underwriting, no tax servicing transfers or re-recording fees, AND no new application or origination fees (uh oh... I guess I'll have to retire ;~)

That's the dream anyway...

It probably won't be ready for primetime in time for your refi, however... so wish me luck and I wish it back to you.

Dave Donhoff
Foolish Mortgage Broker
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