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My wife and I purchased our home in May of last year at an interest rate of 5%. We got a 30-year fixed rate mortgage. As part of that, as anyone else does, we paid a slew of closing costs, including the stuff we seem to get value from such as title insurance, lawyers’ fees, appraisals, etc. With 15-year rates now below 4% we inquired with our bank about refinancing. It seems to make sense for us to do this (the house would be paid off by the time the kids are in college and therefore if we had trouble paying for their schooling, we could tap into that equity.

In any case, the closing costs for a new mortgage (about $180,000) would be … $3,641. Some of that of course include the fees to refile the loan documents and to get a new and updated appraisal. But the two largest elements here are:

(1) $1,372.25 in New York State Mortgage Tax.

(2) $888 in title insurance.

Both of these despite the fact that I paid an even larger NYS mortgage tax just one year ago on the same house. And I’ve lived in the house for only one year, and had a title search and insurance on the home as part of the first transaction. It is mildly insane to have to have an entirely new policy written. Maybe I am just naive, but it seems odd to think that by simply reducing my mortgage from 30 years to 15 years I need to pay a ton of tribute to the state, and also pay off the title insurers who I am sure have the legislators in their pocket.

The implicit tax rate on the NYS mortgage tax is quite large. It would be erroneous to calculate it as a percentage of the home’s value. I paid the tax already. The correct calculation would be to ask how large a share of the mortgage savings would it eat up – and the answer would be quite large. It’s probably not large enough to turn my refinance decision into a “do not do” but as I am often irrational, I am choosing not to refinance because I simply refuse to pay any more tribute to the thugs in Albany than I already have to.

3 Responses to “This Week’s Sign of the Economic Apocalypse”

  1. jb says:

    so let me see if I have this right. The Feds let you write off the interest on your mortgage, and NY imposes a mortgage tax?

  2. Harry says:

    This sounds like lyrics from Les Miz.

    My first thought was the next step would be to charge you for flushing the toilet before closing, but they do that already if you are hooked up, and unless you work in the dark, there are are already taxes on your electric bill.

    Regarding title insurance, what a racket! Eight hundred bucks for something completely unnecessary in refinancing a mortgage.

    I can understand the need for title insurance when there are two parties to the transaction, but one should be allowed to negotiate an hourly rate based on whatever the parties agree on, and once you have paid, the title search documents should be the property of the buyer and seller, in your case something you could put on the table without paying a member of the lawyer guild.

    Some time ago — it may have been in the ’80s — when somebody examined a deed, I think it was in Chester County, PA, where the deed said the person owned the whole township, going back to William Penn, and subsequent titles were found to be flawed.

    The argument made by the Township was similar to Joe Biden’s theory regarding regulatory takings when questioning David Souter during confirmation hearings: Biden’s comment was it would cost a lot of money to compensate titleholders to all that land.

    My recollection is that the courts adopted the same logic in resolving the claim of the person who held title to the township, and that no title insurance companies, nor their heirs and assigns, ever had to cough up a nickel.

    This should speak to the question of whether you should have to pay a penny to the state or a title insurance company to refinance your own mortgage.

  3. Harry says:

    Don’t get me wrong — I am not in any way against a free market in knowledge. I am against unfree transactions, whether be Caesar exacting his tribute, or lawyers running title companies according to state-imposed rules. I cannot think of a single pursuit I ever did where I did not have to use my head to raise the ratio of value to me (how do you measure THAT?) per ounce of effort, and that applies to cleaning pens all the way to the consulting and investment businesses.

    So I am not against paying lawyers or their employees for services.

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