Q: I took an early retirement package from my employer approximately 2 years ago. In order to reduce my expenses during those two years, I took out a home equity line of credit at 4 percent to pay off a rental property mortgage of $113,000 that had an 8.6 percent rate.
I was able to repay approximately $4000 to principal in the past two years. But my home equity line of credit has risen to 7.5 percent and I am ready to refinance the rental property.
I have spoken with a local bank and they offered me what I feel is a good rate of 6.6 percent but the closing costs will be slightly more than $3800 with zero points. I felt that was extremely high based on what I hear from financial experts.
Is this amount negotiable? I have an excellent credit score. I feel that I would be going back to where I was 2 years ago if I do this loan. Thanks so much for your help.
A: Everything is negotiable when it comes to buying real estate, hiring an agent and getting a mortgage.
There is an inverse relationship between closing costs and fees and the interest rate on a loan. The fewer fees you pay, the higher your interest rate. You can also buy down the interest rate of a loan by paying more in fees.
While your closing costs seem high, you’re trying to finance an investment property. Closing costs and fees are typically higher with an investment property.
You should ask what for an itemization of those costs, by the way, because some of them may be negotiable. You may be able to close at the end of the month instead of at the beginning and cut down on your prepaid interest, but this only changes the cash you’ll need at the closing and does not reduce your loan fees. Ask the lender to provide you with an estimate and make sure the closing costs are itemized so you can see what you’re paying.
You should contact at least one other lender to see the fees that that other lender would charge you to compare with the first lender. By shopping around this deal to other lenders, you’ll know if you’re getting a good deal or getting ripped off.
Published: May 14, 2006