There are three major categories of fees associated with a mortgage refinance transaction:

• Lender Fees
• Title Insurance and Settlement Fee
• Government Charges
  

This article will help you understand Title Insurance and other related fees as they apply in the state of Pennsylvania.

The majority of title insurance charges in Pennsylvania are “filed” or approved by the Pennsylvania Insurance Department. These are broken down in four areas:

• Title Insurance Premium
  
• Endorsements to the Title Insurance Policy
  
• Settlement Related Fees
  
• Other Fees
  

Title Insurance Premium

Sometimes referred to as the “title insurance rate,” in Pennsylvania the premium in a mortgage refinance transaction can fall into one of four distinct filed rate structures. The rate is determined by the type of transaction, the amount of insurance required, and the number of years since the last evidence of title insurance (Typically a Deed for value or mortgage filed by an institutional lender).

Mortgage refinance loans are eligible for the Basic rate or one of three discounted rates. The policy amount is equal to the loan amount. See the table below for a quick summary of rate qualifications. Negatively amortizing and reverse mortgage loans may be subject to increased policy limits as required by the mortgage lender.

Title insurance rate calculators are available to help you determine the appropriate rate for your refinance transaction.

Endorsements to the Title Insurance Policy and Closing Service Letter

Since your lender is requiring title insurance, it also may require additional title insurance coverage provided through endorsements to the policy. The rate for most Endorsements in Pennsylvania is $50 per Endorsement.

Most lenders also require a Closing Service Letter that provides additional protections to the lender. The filed rate for a Closing Service Letter is $75.

Settlement Related Fees

These items are “lightly” regulated or not regulated at all. You should pay careful attention to this category and insist on full disclosure of all charges when requesting a quote.

Settlement related charges include notary, overnight mail, tax and utility certifications, and possibly a fee for conducting settlement.

Notary fees should be charged on a per act basis. They are set by the Commonwealth of Pennsylvania.

Pennsylvania Title Agents are to be reimbursed only for their expenses – courier costs, certifications, and other out of pocket expenses. They are not permitted to mark up these items.

A settlement fee is allowable only in specific circumstances. There is no upper limit set by the state. In many cases this charge is not necessary to conduct your closing and only serves to add to the profit of the title agent. You should request it be waived, or negotiate a substantial discount. One way to avoid this charge is to schedule your settlement at the title agent’s office during business hours. Under those circumstances, the settlement fee is absolutely not allowed.

Other Fees

Occasionally other legitimate charges are required for your closing and allowable by the Insurance Department. You should pay attention to any additional items not described above. Often these are unnecessary or “junk fees” like release tracking.  You should shop for title insurance agents who promise no junk fees.

Your best bet is to compare the rates by requesting written title insurance quotes from at least two different title agents recommended by different sources. This should allow you to verify that you are receiving the best possible rates for your refinance transaction.

Homeowners are saving a lot of money on their property transfers, and it all comes down to three letters: FIP

What is a FIP?

In the City of Philadelphia, in accordance with Bill #070541 amending the Realty Transfer Tax section of the Philadelphia Code, you are considered an FIP (Financially Interdependent Person) if you are “Persons who live together as a single household and who, for at least six months, have agreed to share the common necessities of life and to be responsible for each other’s common welfare.”

FIP status is blind to sexual orientation and familial relationships also may qualify such as aunt, uncle, and nephew. The Amendment refers to “the relationship between or among individuals responsible to one another for the common necessities of life (i.e., food, clothing, shelter, etc).”

The Benefits of FIP Status

How might you benefit? If you and your co-FIP own real estate together and one of you no longer wishes to own the property, the Deed conveying his/her interest to you will not be subject to the City’s portion of the realty transfer tax as it would have been prior to the Amendment. The transfer tax in Philadelphia is 3% and on transfers for nominal consideration, the tax is based upon the Fair Market Value of the property. The tax is prorated in accordance with the percentage of interest being transferred.

This exemption also applies to adding a Financially Interdependent Person to your Deed.

Registered Life Partners are not required to prove their financial interdependence.

What to Expect

Your Deed transfer could be subject to audit by the Department of Revenue. Your status will be verified by your submitting documentation including, but not limited to, copies of statements of joint bank accounts, joint utility bills, and proof that you have equally shared in housing expenses.

To protect against the misuse of this benefit, the immediate subsequent transfer of the property within a certain time frame may cause the Department of Revenue to “look back” and tax the previous exempt transaction.

Important to Note

The Commonwealth of Pennsylvania does not recognize an exemption for property transfers between Financially Interdependent Persons; therefore, the transfer will be subject to the 1% Realty Transfer Tax imposed by the Commonwealth of Pennsylvania. The tax is prorated in accordance with the percentage of interest being conveyed.

As in the past, there is no City or State transfer tax assessed on transactions between husband and wife and parent and child.

Where to Turn

There is no doubt that the FIP exemption will benefit many residents and while the transfer is not complex, certain procedures must be followed including the signing and filing of multiple Affidavits. When your real estate transaction requires title insurance and you believe you might be eligible for the FIP exemption, be sure to select a title insurance professional experienced in these transfers. For Deed transfers not requiring title insurance, contact a real estate attorney.

Visit Phila.gov for Bill No. 070541 for details.

Need a City Real Estate Certification for Philadelphia?  No need to go to City Hall.

The Department of Licenses and Inspections Online Certification Site now provides an online application in just a few easy steps. The City charges $100 for the Certification plus an additional $3.00 service charge. Receipt of the Certification can happen in minutes. Payment is made by major credit card. Adobe Acrobat Reader is required to download the certification.

Why am I skipping a mortgage payment?  This is a frequent question at the settlement table and one that deserves a detailed answer.

The first mortgage payment on your new loan is typically due the first day of the second month after you have signed the mortgage papers.  For example, your refinance settlement takes place on February 2 with a funding date (click here to learn more about “funding date” )  of February 6.  Your first payment is due on April 1 which will cover principal and interest due from March 1 through March 31. Your second payment is due on May 1 which will cover the period from April 1 through April 30.

Paying your mortgage is the opposite of renting:  You live there first and then you pay.  This is called paying interest in arrears.  And this is a good thing because after all, you wouldn’t want to be chasing after your mortgage lender to get your money back once you have paid-off the loan.

Traditionally, at the time of a refinance, you will be free from making one mortgage payment.  But be careful, don’t mistake this for the mortgage money being free for a month because nothing is free. Or,  possibly, you will skip two months, or if you are short on cash-to-close, you just might not skip a payment at all.  These last two scenarios are not as common as skipping one month’s payment but it can happen when the stars align … no, actually it has to do with the last mortgage payment made, your closing date, and your funding date.

About Interest:

Keep in mind that you owe your new lender interest on the new loan the day your transaction funds.  At the time of the refinance, you owe the “new” lender interest on your new mortgage loan from 2/6 (funding date) through the end of February at the rate of $25 per day (per diem) or $555 (23 days of interest (2/6-2/28) at $25 per day). This rate is deterimed by multiplying your new loan amount by the new interest rate and dividing by 360 or 365 days – lenders choice on the number of days it uses to determine the per diem rate. Note:  when purchasing, the date of settlement is your funding date. (click here for more information on “per diem”).

So, back to the answer, if you are still with me:

Skipping one month:  You sign on February 2, the funding date is February 6.  Your first mortgage payment is due April 1.  You made your February payment to your “old” lender and you will not make a March payment  – one month skipped.

Skipping two months:  You sign on February 2, the funding date is February 6.  Your first mortgage payment is due April 1.  You have not made your February payment, which means you owe your “old” lender interest from January 1 through the payoff posting date and this interest will be included on the payoff statement. You will not make a March payment to your “old”  or “new” lender – two months skipped.  (Warning: Results in more cash required from you at closing than under “skipping one month” above)

No payment skipped:  You sign on February 2 , the funding date is February 6 and you have made the February payment to your “old” lender.  In the previous two scenarios, you owe the “new” lender interest on your new mortgage through the end of February; however, you are short on cash to close.  Therefore, instead of the lender charging you $555 for interest due to February 28, it will give to you 5 days worth of interest (2/1 to 2/5) or $125.   This amount will appear as a credit (-$125.00) to you on the Settlement Statement.  Your first payment will be due March 1 (not April 1 ) which will include interest for the entire month of February.  In this case, you are not skipping a payment, you made your February payment to the “old” lender and your first payment is due March 1 to the “new” lender.”

Timing is everything; review your personal finances and cash-on-hand with your mortgage professional before scheduling your real estate closing.

One of the most frequently asked questions at the settlement table is:  Why is my mortgage payoff amount higher than the balance showing on my most recent statement?

When you receive your monthly statement from your mortgage lender, the unpaid balance IS NOT the amount necessary to pay the loan in full.  This is merely the principal balance as of the first day of the previous month.

For example, you receive your February mortgage statement and the principal balance is $210,325. You are scheduled to refinance your existing 6% mortgage on February 2 and when you arrive for settlement, you see that the payoff amount is $211,742.37.  Perplexing?  Yes.  Easily explained, not really, but follow along:

The February statement shows a balance owing of $210,325.  This figure  is what is owed as of January 1 – not February 1.  Why? Because when you made your January payment to the mortgage lender, you were paying interest in arrears - you pay the interest for the previous month – in this case interest that was due from December 1 through December 31.

If you have not made your February payment you have not paid the interest from January 1 through January 31.  Thirty-one days at $34.57 a day (see below on how I arrived at $34.57) adds $1,071.67 to the principal amount you owe the lender for a total of $211,396.67.

But, the payoff is still $345.70 higher.  Dont forget, you have to pay interest to the lender until it receives the payoff from your settlement agent.  In this case, an additional 10 days of interest at $34.57 or $345.70.  Why ten days?  We assume that this property is subject to the right of rescission and the funds to pay off the mortgage won’t be released to your settlement agent by your new lender until February 6.  The payoff will be sent to your former lender by overnight courrier.  February 6 happens to fall on a Friday so we have to allow until Monday for delivery which is the 9th.  Where’s day number 10?  Experienced settlement agents know that you have to allow at least one day for unforeseen problems – snowstorms, airport delays, etc.

How did I arrive at the per day rate of $34.57 – or the per diem?  Simply take the principal balance of $210,325 and multiply it by your current rate of 6% which equals yearly simple interest of $12,619.50 divided by 365 days in the year for a per diem of $34.57.  Some lenders will use a 360-day year which increases the per diem and in our case to $35.05 – that’s about a 70 cents per day difference or $252 a year in additional interest.

Keep in mind that the lender being paid-off will refund to you any overpayment in daily interest.