Not So Free Legal Fees



Free-Legal-FeesA 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

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Comments

  1. Comment avatar

    jason    

    the other problems that consumers need to be aware of are the service delays and failures that often come along with working with a legal closing service such as FNF or FCT- their model allows them to be profitable based only on volume and you will never have the chance to speak to a lawyer, only the legal signing agent. I would comment that a law firm such as Vanguard Law is based on a similar model only but with fantastic customer service.

     
  2. Comment avatar

    Gord McCallum    

    It’s also true that the client’s “no-fee” experience will include fees. Only FCT or FNF’s fee is waived…usually there are additional charges based on the number of discharges required, etc. etc…it can often total several hundred dollars when it’s all said and done. It can be a nasty surprise for the client when they have to give the representative a cheque for the “no-fee” service.

     
  3. Comment avatar

    Church Mortgage    

    Beware of “free” deals in mortgages. The increase in interest rate associated with the free offer can easily cost you more than it saves.

     
  4. Comment avatar

    geri    

    Question, how is the transaction process when someone is on end of term and want to refi and straight switch lender (no changes supposed), what are cost associated with it, please elaborate. Anyone?

     
  5. Comment avatar

    Robert McLister    

    Hi Geri,
    If you are well-qualified and have a regular “switchable” mortgage (i.e. not a collateral charge or a mortgage with a line of credit), then legal/registration fees and appraisal fees are usually paid by the new lender. That assumes the loan amount, LTV, and amortization don’t increase.
    You usually just need to pay your existing lender’s discharge fee. Speak with a mortgage advisor for details and exceptions.
    Cheers…

     
  6. Comment avatar

    The Mortgage Guy    

    I have seen this before and I agree that in the vast majority of cases it is better to just pay the legal fees yourself and take the lower rate. The higher legal fees are just a gimick to try and get a few extra bucks out of the client. From my experience any time a lender is offering something for “free” it comes with a higher interst rate and in many cases involves the client paying more in interest then they are saving at funding.
    JA

     
  7. Comment avatar

    H Gustin Texas    

    Take the lower rate…I agree with the mortgage guy. Free is never free these days.

     

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