Considering a Mortgage Refinance?
When you first purchased your home you signed a mortgage, agreeing to pay, e.g., $1,000 per month for 30 years with an interest rate of 5%. You can revise those terms by refinancing (paying off the first mortgage with the proceeds of a new one).
You may want to do this to:
- Reduce the total amount of interest you pay to your lender
- Provide protection against rising rates (by paying off an adjustable rate mortgage with a fixed rate mortgage)
- Access the equity in your home. If you have been making monthly payments for a considerable amount of time and/or the value of your home has increased so that the outstanding principal balance of the original mortgage is much less than the value of the home, you may be able to “borrow” against this amount. This is known as a cash out refinance and would result in a check paid to you on the closing of the refinance.
- Lower your monthly payments (if the new interest rate or the amount borrowed is less, or you extend the term, your monthly payments will be lower)
The Closing Costs for a refinance are much lower than the costs for your original mortgage. Your title insurance premium is significantly less (you are entitled to the “re-issue rate”), various lender costs are less or non-existent, third party fees (for example for an appraiser) may also be less or non-applicable.
Additional Cost Savings
New York State levies a mortgage tax of approximately 1% of the amount borrowed when a mortgage is recorded. You paid a significant portion of this with your original mortgage. A Consolidation Extension and Modification Agreement, which is usually referred to as a “CEMA” or “ConMod, can be recorded with your new mortgage. The CEMA gives you a credit for the mortgage tax previously paid, meaning you may have little or no mortgage tax to pay on the new mortgage. (Sometimes if the new loan amount is low, we don’t use the CEMA since the recording fee for it may wipe out most of the savings.)
Attorney Representation and Tangential Benefits of a Refinance
You are not legally required to have an attorney represent you in a refinance, however they will be able to provide you specific guidance:
- Occasionally you would not save money with a Refinance. If, for example, you plan to sell the home within 2-3 years, you would probably not recoup the new closing costs.
- If you have other specific needs a “second mortgage” or line of credit might cost less and be more efficient.
- Residential properties act as magnets for credit card judgments, neighbor disputes, municipal grants, utility easements, etc., problems, any of which may have become a concern since you first purchased your property.
- “Adverse Possession” is a well-known legal concept which occasionally (not so often as is commonly believed) gives rights to neighbors who have acted contrary to your ownership interest for 10 years or more.
A refinance is a good time to discuss the above with an attorney and may in fact be discovered for the first time in connection with the title insurance exam.
HoganWillig represents most of the national and local lenders making loans in Western New York and we can provide you with additional costs savings.