Mortgage deals sometimes differ for 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
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.
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
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.
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.