Closing the Refinanced Mortgage

Mrs. ToughMoneyLove and I spent about 30 minutes at a local office of our new bank. Today was closing day on our mortgage refinance. The number of papers that need signing seems to be increasing exponentially.

I was relieved, however, that the lender did some serious underwriting of the loan. There was a full appraisal, credit check, verification of income, a request for two years of tax returns, etc.  They even required that we immediately escrow a full year’s worth of tax and insurance payments.  All of this for a very low risk transaction in which the loan to value ratio was a mere 20%.

Our interest rate declined to 3.875%, cutting our total payment in half.  We will be using the extra cash flow to fund some interior upgrades. We are still not sure how long we will be in the house but it will definitely be beyond the six month payback period for the closing costs.

I had an interesting conversation with the owner of the title company that closed the loan. He and his business partner started the business in the summer of 2007, just before the bottom fell out of the residential housing market. Almost immediately, their start-up business went from 40 closings per month to six. They were able to survive because they were small with controllable overhead and because of heavy reliance on technology. Many much larger title companies went out of business.

During the closing the question of an owner’s title insurance policy came up. We had already purchased owner’s coverage when we built the house. Beyond that, we’ve owned the house for so long that the statute of limitations on prior title defects has expired.

With the economy stuck in neutral I think mortgage rates will remain low for the foreseeable future. Take advantage of them if you can.

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