Thursday, August 25, 2011

Mortgage refinancing for women. Warning: Watch out for the stealth lien

As someone more or less on a fixed retirement income I've been looking for ways to cut household expenses. Refinancing my home mortgage loan seemed like a good deal with interest rates this summer at historic lows. As I mentioned in a previous post at sixtyandsingle.com I turned down a refi offer from Chase Bank this year but later have said yes to a deal with Umpqua Bank.
I am glad I went through with the refi not just because it cuts my mortgage payment by $288 a month but also because of the unresolved lien on my house left over from my divorce three years ago. I would never have discovered this lien without the refi. It could have caused real trouble 10 or 20 years down the road.
So the first lesson from this refi is that for all of us who divorce: Make sure in a divorce settlement that everyone involved follows through on what they said they would do.
In my case, I'd agreed to pay-off my now ex-husband to the tune of $25,000 so that I could go on living in what had been our house and take over the mortgage loan that went with it.
In a community property state, he walked with his assets including a vacation property out of state. I got the house and the mortgage debt, along with my retirement and savings assets. To insure that he got his money, my husband (or his attorney) put a $25,000 lien on my house until I could refinance the loan and pay him off. I did that a month after the settlement. At the time, everyone (including my own attorney) promised me that the lien would then be removed. My mistake was believing that. I went on with my life, not thinking about it again.
Title company surprise
So last week when the title company found that lien still in place I was a bit, shall we say, surprised. Fortunately, the title company was able to track down my ex-husband who came to the office and signed documents to remove the lien, agreeing that he had been paid. However, he refused to pay the $170 fee from the title company for doing the legal work to remove the lien. That meant I had to pay it or my re-fi deal would not go forward. So I paid it. (I'm considering small claims court).
It could have been a lot worse. My ex could be dead or disappeared. It could have thrown a wrench into the whole refi deal or worse, the sale of the property, down the road.
My advice: In a divorce settlement write your settlement check to his attorney (not directly to him). The attorney then transfers the money to his client. That way there's a separate paper trail in case someone doesn't follow through on the lien removal. You can use the paper trail to prove that the debt was paid off.
Over all, I'm happy with the seven-year adjustable mortgage agreement I got from Umpqua. I have seven years -- until 2018 -- to pay off the mortgage loan by either selling my house or by using expected inheritance from my mother. Seven years feels like a long time, but I know it will go fast.
Here's what I got out of the deal. For $2,063 in settlement charges, I'm getting a monthly loan payment that is $288 lower than my current monthly payment for a savings of $3,456 a year. That may not sound like much but for me it's found money that will go into savings. Go to bankrate.com's calculator to figure your own savings.
I will have recouped the cost of the loan in less than a year. The new loan interest rate is 3.6 percent, down from the old 6.1 percent.
At the end of seven years, if I have not sold or paid off the loan, the payment could jump to a maximum of 8.625 percent but never go any higher. My monthly payment at that rate would be only $100 more than what I'm paying now.
I like the seven year deal....especially as a retiree looking to cut household expenses. I've got breathing room to plan.
What else do you need to know? See below:
Finding the best lender
 Do not go with an unsolicited refi offer received by mail or by phone. These deals are expensive and may not meet your needs. What is promised may not be accurate. They'll want a fee up front over the phone, charged to your credit card.
Instead find a local bank and loan officer that you trust. In fact, interview two or three in person to see who has the best service and the best mortgage package that fits your needs. Make sure you get an official written loan proposal showing all aspects of the deal including closing costs and fees, title company fees, appraisal fee and your new monthly payment and loan details. Do not do a deal over the phone or online. You just don't know who you're dealing with!!! 
Appraisals, what's new?
I learned about appraisals. To do this deal I had to pay out of pocket for an independent appraisal. Since the housing melt down, regulators don't want banks using their own appraisers for fear of manipulation of the assessed value. As I expected my appraisal came in below my home and property assessed value as determined by my taxing district and way below what my property was worth at the time of my divorce.
From what I've read, if real estate appraisals were inflated during the housing boom beyond reasonable value, they now are too low.
I'm lucky in that my loan is still less than the revised new appraised value even through my property has lost substantial value (30 percent) in the past three years.
Appraisal fees, by the way, are no longer folded into the new bank loan along with other refi costs. I had to pull out a credit card to pay separately for the appraisal. That's because so many loan deals fall through before closing. Banks don't want to be stuck with paying that fee, which now runs around $500. Yes, I know, they used to cost about $250 or $300.
Checking the paperwork and more tips
As I was signing the papers to complete the re-fi transaction at the title company, I got to visiting with the woman who was walking me through the process. Here's her advice to women looking into a refi:
- Now is a good time to do such a deal with interest rate at record lows. The rate on a 30-year fixed is 4.41 percent. If your current mortgage rate is more than 6 percent, you likely would benefit from a refi.
- Make sure that when you come to the title company to sign the paperwork you compare what you're signing with what the loan proposal from your lender described. It they don't match up to your liking, walk away. All too often, numbers don't match and the borrower is left paying a higher or different monthly mortgage payment than promised.
Don't sign something that's out of whack with what you expected. The law requires a three-day waiting period before filing, if you have second thoughts.
Tax implications
Check into tax implications. You may be able to write off certain costs of the refinance such as the origination fee on your federal tax return. You may also be able to write off the remainder of the prior loan expense.
If you have remarried but live in a "community property" state.
 If you have remarried and live in a community property state such as Washington, the title company will require that your new spouse sign a "quitclaim" document saying he has no interest in your separate property. This a requirement by the title company, even if you and your spouse have signed a pre-nuptial agreement saying the same thing.
What counts as income with the lender
Because I'm semi-retired, qualifying for the loan got a bit tricky. My monthly Social Security benefits check counted as guaranteed income. My monthly income from freelance business writing and consulting did not. So I had to temporarily sent up an automatic withdrawal from my nest egg rollover IRA 401(k) investment account to meet the income qualifications. Once established, I then canceled this automatic withdrawal and redeposited the money back to the rollover IRA  401(k).
Pluses of a mortgage loan refinance: Saving money by lowering the interest rate on the loan and cutting household expenses. Stabilizing a monthly payment by switching to a fixed-rate mortgage or using a longer-term adjustable to cut costs and get some breathing room.
Minuses: Refi costs average between $2,000 and $3,000 and are typically folded into a new loan. An appraisal fee is paid out of pocket and will cost about $500. You've got to do your homework. Make sure you understand the terms of the loan. Find a good loan officer that you trust, who will do what was promised. Talk to your friends for recommendations.
FOR MORE INFO:
- Mortgage calculator: To calculate loan rates and monthly costs go to bankrate.com,
- Here are tips on loan refinancing from from financial writer Richard Barrington at www.guidetolenders.com
- How to refinance your loan in retirement at newretirement.com, click here.
- Top reasons to refinance a mortgage loan at mortgagecalculator.org, click here.
- Mortgage loan rates at bankrate.com, click here.

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