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© St. Petersburg Times, published October 12, 2002
Question: My son and daughter-in-law want to refinance their home loan to reduce its interest rate. They plan to stay in their home forever. They have talked with two lenders. The second lender, one of the biggest banks and a major nationwide home loan lender, quoted very high fees. But when my daughter-in-law showed the bank's loan agent the lower fees from the other lender, the big bank immediately agreed to reduce its fees by $2,800.
I'm wondering what fees a refinancing homeowner should expect and what fees are unreasonable junk or garbage fees that you often discuss.
Answer: If your son and daughter-in-law were planning to keep their home just a few years, I would recommend an adjustable rate mortgage, locked in for five or seven years, because they are so inexpensive compared with fixed-rate mortgages (which are also bargains). But a fixed-rate home loan is probably safer for homeowners who expect to stay a long time.
Refinancing is much different from obtaining a home acquisition mortgage. When buying a home, the up-front loan fee of 1 or 2 percent of the amount borrowed (called points) is tax-deductible in the year paid. But refinancing homeowners who pay loan fee points can deduct them only over the 15- or 30-year mortgage life. That's no fun.
For this reason, your son and daughter-in-law should obtain a "no-point" home loan refinance, even though their tax-deductible interest rate will probably be about 1/8 of a point higher than if they were to pay a 1 percent loan fee.
They should start with their current mortgage lender. Many lenders are eager to keep their current borrowers (and their profitable loan service fees) by offering attractive refinance streamline "modification" at minimal cost. FHA and VA lenders are prime examples of "good guy" refinancers.
Unfortunately, most lenders treat existing borrowers like untrustworthy new customers who just walked in off the street. That's why it pays to shop around for mortgage refinancing.
Your son and daughter-in-law should expect to pay refinance loan costs such as title insurance for the lender (ask for a discount if the home was purchased within the last few years); credit report fee (about $50); attorney or escrow fee; and small fees such as wire fee, FedEx fee, recording fee and notary fee.
But they should question any charges that were not disclosed on the lender's "good faith estimate," which they must be given within three days after making their loan application.
Examples of pure-profit unnecessary lender junk or garbage fees that are not actual lender costs include administration fee, underwriting fee, warehousing fee and processing fee.
Question: We just refinanced our home loan. Thirteen days after we signed all the papers and assumed everything closed just fine, we were informed we owed $700 more to close out our old mortgage. It turns out the old lender provided the amount due over the phone and never verified it in writing. This amount was wrong. Is this a legitimate business practice to complete refinance papers with oral information? Do we have any recourse?
Answer: If I were you, I would be steamed at whoever handled your bungled refinance closing. There is no valid reason for a mortgage refinance closing agent ever to accept an oral payoff amount from an existing lender. With fax and e-mail easily available, your closing agent should have insisted on written verification of the payoff amount for your old mortgage.
My suggestion is to write a polite letter to the person who handled the closing, explaining that they were well paid to handle the closing correctly. Just because they made a mistake doesn't make you liable for the extra $700.
If the closing agent dares to sue you in small claims court for the $700, I would counterclaim for the $700. Leave it up to the judge to decide. Because this was a mistake of which you had no knowledge, you should have no further legal liability.
Question: You recently reported that the VA has a streamline refinance plan. My son has a VA mortgage with an 8 percent interest rate. How can he find out about refinancing at a lower interest rate?
Answer: Your son should contact his current VA loan servicer. The same advice applies to FHA borrowers who want to refinance under the FHA streamline refinance plan. Your son can save a small fortune over the life of his VA mortgage by reducing its interest rate. If for some reason his VA loan servicer doesn't offer streamline refinance, it is my understanding that any VA-approved lender can streamline refinance an existing VA mortgage.
-- Readers can send questions to Robert J. Bruss at 251 Park Road, Burlingame, CA 94010, or e-mail him at robertjbruss@aol.com.