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Mortgage deals sometimes differ for refinancing

Refinancing If you think you always get the same rate and terms for refinancing a mortgage as you would get when buying a house, you're mistaken. Lenders sometimes charge different points and fees to refinancers and buyers.

Whether you're buying a house or refinancing an existing mortgage, it's a good idea to compare a lender's rates and costs for the two types of loans. Most lenders charge the same rates and points for refinancers and buyers. If your bank's charges differ, you'll have a better sense of whether you're getting a good deal.

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If you're buying a house and you know that your lender gives a little break to refinancers (or if you're refinancing and your lender gives a break to buyers), you can use that knowledge as a bargaining chip. It can't hurt to ask for the same break.

Buying some protection
Generally, lenders offer the same interest rate for mortgages, whether the loans are for purchases or refinancings. But the closing costs for purchases and refinancings are different, and lenders will offer different incentives to buyers and refinancers, depending on which kind of customers the lender is targeting.

The biggest cost difference between refinancings and purchases comes from title insurance. The difference often is hundreds of dollars. That makes it confusing to compare the cost of a refinance loan and a purchase loan.

Title insurance is weird. Usually when you buy an insurance policy, you're protecting yourself against something that might happen in the future. Title insurance protects against something that happened in the past. Title insurance pays out if the title company screwed up before you closed on the loan -- by missing liens or failing to detect forgeries, for example.

When you buy a house, you almost always buy two title insurance policies. One protects you, and the other protects the lender. When you refinance, you buy one policy -- the one that protects the lender.

As a buyer, the policy that you buy for yourself insures that you really do own the property, that you have access to it, and that the chain of title is clear (there are no forgeries or unaccounted-for ownership gaps). When you pay this title insurance premium, you're covered for as long as you own the property, no matter how many times you refinance.

As a buyer or refinancer, the policy that you buy for the lender insures the lender for the above items and also protects the lender against mechanic liens and the forced removal of a structure because it extends onto adjoining land or an easement, among other things. You pay this title insurance premium every time you get a mortgage loan -- even when you refinance.

Bottom line: When you buy a house, you have to pay for two title insurance policies -- one to protect you and one to protect the lender. When you refinance, you have to pay for one title insurance policy -- the one to protect the lender.

Crunching numbers
Since the title insurance costs more for buyers, a lender who is marketing to home purchasers might offer a price break to buyers and not to refinancers. Such a price break might come in the form of lower points or a rebate.

On the other hand, a refinancing boom is going on now, so lenders are competing for refinancing customers who want to pay as little as possible at the closing table. So some lenders are offering rebates or charging fewer points to refinancers.


-- Updated: July 24, 2002
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See Also
Refinancing: Get it while it's hot
Cash-out refinancing vs. home equity loans
When refinancing activity booms, watch out for mortgage tricks


National Mortgage Rates
Rates may include points.
30 yr fixed mtg 3.91%
15 yr fixed mtg 3.03%
5/1 jumbo ARM 3.68%

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