In New York there is a mortgage tax based on the loan amount.  For residential mortgages up to $500,000 the rate is .8% (plus an additional 1% for if you live in New York City – Staten Island, Brooklyn, Bronx, Manhattan or Queens) and the rate increases for higher loan amounts.  When refinancing your mortgage you must pay the mortgage tax based on the new loan amount un less you plan wisely.  Here my client paid mortgage tax of 1.8% on his new loan amount $485,000 for a tax of $8730.  Since he paid off his old loan of $470,000 and his new payment was almost $300 a month less, he calculated he would recoup his closing costs in about 41 months (closing costs 12,200 ÷ monthly savings $300).   This refinance made sense but he could have avoided the mortgage tax by doing an assignment and modification and saved about $7200 by getting credit for the amount of mortgage tax paid on the original loan (1.8% of $470, 000) even after calculating the additional modification fees(about $1200).

If you have to pay them to do the refinance they are closing costs.  Call your lawyer before refinancing.  If I can’t help save you money I will tell you to do it on your own but most times I can save you money.  Get a Good Faith Estimate of closing costs and make sure to ask your mortgage broker about doing a modification to save mortgage tax.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

 As a result of the depressed economy, lenders have reduced interest rates to historic lows but many homeowners are not getting the benefits as they see refinancing as a hard process.  (See another interesting article from NY TIMES correspondent Bob Tedeschi) This is not the case so if you have an interest rate of more than 5.5% you need to call quickly investigate the benefits of refinancing your mortgage.  While lenders have tightened up their underwriting criteria (you will need good credit, income and your home must have positive equity) if you can qualify to refinance it should save thousands of dollars. 

A couple things to consider

1)  Difference in rates between existing and new loan
2)  Closing Costs
3)  Are you increasing your mortgage’s principal balance and loan term?
 
Refinancing should not be a mystery.  Call your lawyer with a copy of your current mortgage statement and he can give you a quick run down on what to say to a lender and how to save a couple dollars on lender and title company fees.  Call a couple of lenders and get a few good faith estimates (GFE) to review with your lawyer.  He will quickly show you the differences between the estimates and calculate the true closing costs.  Divide the closing costs by the monthly cost savings and you will get the time needed to recover the closing costs (number of months).  For the refinance to make sense you must be sure that you will keep the new mortgage long enough to recover the costs.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

1) Monica had a mortgage of $200,000.00 at 6.25%.  She was able to use a modification with her existing lender HSBC to reduce her interest rate and lower her payment by $140/month.  Her closing costs, (no mortgage tax on modification) to $2300.00 so by dividing the cost ($2300) by the monthly savings ($140) it shows that it will take her 16.5 months to recover her closing costs.  If Monica intends to be in the house for more than 17 months the refinance makes sense.
 
2) Lesley couldn’t do a modification and would have to pay mortgage tax again (1.8% on $200,000 = $3600.) so her closing cost was $5900.00.  Taking the closing cost ($5900) divided by the monthly savings ($140) it would take her 42 months to recover the closing costs.  Her plans were to remain in the home for a long period so the refinance made sense.

3) Sandra would be able to do a modification (like Monica) but her timeframe for remaining in the house was only 12 months.  After discussion she investigated an adjustable rate (ARM) but ultimately decided that since she intended to move that any monthly savings could not justify paying the closing costs.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Unfortunately, even if you are just looking to lower your interest rate and loan payment your loan request must go through the whole underwriting process.  Therefore most lenders refinance applications are the same forms as a purchase money mortgage application.  A borrower must show (and the lender must verify)

1)  Credit Report -that the borrower has good credit,
2)  Income – that borrower makes enough money to support the loan,
3)  Reserves – some available liquid assets (bank or brokerage accounts) and
4)  Collateral- an appraisal is done to document the home’s value to determine loan how much of a loan the lender is willing to make. 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.