With a competitive spring market in full force banks and credit unions are offering rates for their mortgage with free legal fees. Before you sign on what seems to be a great offer take a look at the numbers and see what a mortgage with free legal fees is really costing you.
This is one of the first times in history you can find fixed mortgage rates at same or similar rates to a variable rate mortgage. So all the lenders are competing with this product and using marketing campaigns including special offers to attract borrowers. With 5 year fixed rates around 2.79% the credit unions and major banks offering higher rates from 2.99%-3.04% are looking for ways to sway customers to them. The latest promotion is a mortgage with free legal fees. On paper it sounds attractive saving you money up front when you don’t have to pay for an appraisal or legal costs. But when you look closer, consider this.
1. The offers include legal fees. This represents less than $500 of your legal bill as other costs such as title registration and disbursements and taxes will not be covered by this offer.
2. The offer includes appraisal fees. Most non-bank lenders do not require an appraisal or will utilize a general valuation system in lieu of a full appraisal. For those lenders who do require an appraisal the cost is less than $300.
I recently had a client come to me who had an offer for free legals with the rate of 3.04%. When we calculated the difference between a rate of 3.04% and no legal fees versus a rate of 2.89% with the client paying their own legal fees (no appraisal required) the savings to the client over 5 years going with the lower rate was $5,000! So the mortgage with free legal fees was not a good deal.
Offers for a mortgage with no legal fees stating “save up to $1500 on legal and appraisal fees” are no savings at all. Yet these campaigns attract many home buyers. Always check with your mortgage broker to compare the best mortgage for you which includes the terms, conditions, rate and penalty costs before you sign anything – it could save you thousands of dollars in interest and help you pay off your mortgage years sooner.