Home Business & Finance Financing your condo, co-op, or townhouse
FEES AND REFINANCING
Yes, there will be dosing costs if you ever decide to refinance your loan — pretty much the same costs as when you purchased the property. But there are ways to save on some of the costs.
• Appraisal. If you're thinking of refinancing, call your old appraisal company. Tell them you'll request their services in exchange for a discount.
• Attorney Fees. Depending on the services attorneys provide where you live, you may also want to contact the one you used when you purchased the property. Tell them you're thinking of refinancing and make the same offer that you made the appraiser.
• Lender and Mortgage Broker Fees. Here's a good tactic to use when you make the original purchase. If a loan officer isn't budging on, say, waiving a fee, before you give in ask, “What if I were to use your services again, if I ever refinance. Would you waive that fee?” If they agree, get it in writing so you can remind them of their promise when you come back.
• Title Insurance. Title insurance discounts vary. Again, when you make the initial purchase, ask about a discount “reissue” rate for using them again in the future if you refinance. Some states require you use the same title company and others issue a discount based upon the age of the current policy.
Some companies own both a title company and a closing company; if you use both of their services you can get discounts on title insurance and closing costs.
NO-CLOSING COST MORTGAGE
You've seen the ads or heard them on the radio or Internet, “No closing costs!” What a deal, right? Why doesn't every lender offer them and why would people even consider paying closing costs if they didn't have to?
In reality, every lender or mortgage company offers a no-closing cost loan. It's simply a mortgage loan that has the interest rate adjusted to offset some or all of the closing fees. It works like this:
Say there is a mortgage loan at $500,000. On a regular 30- year fixed rate at 6.50 percent with typical closing costs, the monthly payment works out to $3,160 — with around $3,500 of nonrecurring fees and $2,000 worth of prepaids.
As discussed in chapter 3, you can typically “buy down” an interest rate by 1/4 percent for each discount point you pay. In this case if you paid a point, the rate would drop to 6.25 percent, the payment would drop slightly to $3,078 per month, and you added $5,000 to your closing charges.
Conversely, you can increase your interest rate by 1/4 percent from 6.50 percent to 6.75 percent and the monthly payment goes up to $3,242 per month. Just as you can decrease your rate by paying a point, you can increase your rate by 1/4 percent and the lender gives you a one-point credit, or in this instance $5,000 to cover closing costs.
Your closing costs added up to $5,500 and your lender gave you a credit in exchange for a higher rate, but now you only have $500 in closing costs and not $5,500!
There actually is no such thing as a no-closing cost loan. There may not appear to be closing costs, but there are higher monthly payments. In this example, your payment would go up by $82.
How do you evaluate a no-closing cost loan to see if it's right for you? Take the monthly increase in payment and divide that amount into the money you saved in closing costs, or in this case $5,000: $5,000 divided by $82 is 60.98, or 61 months.
Be careful of no-closing cost ads; sometimes in the fine print it will read “no lender closing costs” rather than “no closing costs whatsoever.”
Closing costs and interest rates are the single biggest shell game in the business. But because you read this book, you won't get taken in!
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