A bunch of lenders have come out with free legal fee offers on refinances. In some cases, there are strings attached.
Lenders with “free” legal packages often have two rates: a rate with legal/registration costs included and a rate without.
The rate with “free” legals is often 10-20 basis points higher. Here’s what that means in practical terms.
As an example, assume you’ve found 5-year fixed rates of 4% with “free” legals and 3.90% without. In this instance, other things being equal, paying the higher rate would only make sense if your mortgage were less than ~$161,000.¹
As a rule, if you’re refinancing and your mortgage advisor presents a rate offer with a free legal package, always ask what the rate would be without legal fees. Then have him/her do the math to see if the à la carte rate works out better for you.
Sidebar: At times, some lenders offer good rates and a rebate for legal fees. If you’re refinancing, ask your mortgage professional if any such offers exist.
Note: Switches (where you change lenders but the loan amount, amortization and LTV don’t change) usually entail no legal costs. Some mortgage types (like collateral charges) cannot be “switched,” however, and must be refinanced.
¹ Assumes a 25-year amortization and $650 in legal costs rolled into the mortgage. Refinance costs typically range from roughly $500 to $800, with $650 being an approximate average. Most no-charge legal packages use title companies (like FNF or FCT) to close the mortgage.
Rob McLister, CMT