Refinance Plans May be Hazardous to Your Asset

With all the bailout brouhaha in the news, with most every industry with their hand out, the real losers continue to be homeowners and taxpayers. More accurately, the middle class, left bearing the weight of a government out of control and the entitlement class expecting a boost without reciprocation. With elitists demanding taxpayer dollars to recoup lost wealth and politicians demanding that the laziest amongst us given a guaranteed share in the wealth, the middle class finds itself the lot that will fund both.

The pandering by politicians and the wealthy, with insincere pleas and phony desperation is at best pure self-serving twaddle.

The overly touted tax relief, which is not forthcoming from the federal government, Annapolis and local overlords, who are already coveting the graft they jealously shield, will not be forthcoming unless there is an outcry by the extorted middle-class.

Federal, state, and local governments are whining that they are under tight budget constraints, but continue spending unabated. Rather than loosen up on revenue streams that place an undue burden on taxpayers, they mortgage new pork projects and find ways to increase revenue sources.

In government's warped sense of priority, it is far more important to maintain the spending status quo than it is to unburden taxpayers. In every press account, politicians pronounce they want to assist the people, but in action, they refuse to cut back on their own largesse. In fact most states are enacting increased tax schemes to keep political lifestyles intact.

Maryland is by far the worst culprit, the states forward progress has never been in such a crisis since its incorporation.

The most glaring tax theft going on today --and by far not the only one--would be local and state government's refusal to lower property assessments in line with current market values. On average, Maryland residents are overpaying about 15-20 percent on their property taxes. Dependent on where you live, each homeowners share will equate to $120 per month, on average.

The taxes extorted from ill-informed homeowners will go directly into O'Malley administration coffers, which in turn have allowed him to buy up private land at reduced market values. (Market values that are incongruent with the overstated values foisted on home and landowners elsewhere in the state.)

Maryland is using the opportunity of lower market values (that have become completely subjective around the state) to purchase large tracts of land, in turn demanding higher assessment value in some areas to pay for the land grab.

From your pocket to the State of Maryland, this is a fact, which ensures a spending proclivity beyond reasonable or fair. The O'Malley administration refuses to do the right thing and make an automatic adjustment that favors homeowners, by lowering the values to current fair market value.

Subsequently, with that penchant for spending, the feds and state government encourages homeowners to refinance at artificial higher values to keep the market unnaturally elevated. The gambit works to keep the transfer tax revenue flowing and in turn justifies keeping assessments above accurate market value. The problem, assessed values do not account for the real loss in the market when homes, overvalued by Maryland assessors, are priced beyond their ability to sell.

In order to justify the increased value, government has encouraged cash strapped, over-taxed constituents to expand their debt load. Therein lays the rub.

In this struggling economy, with financial institutions folding faster than a circus tent in a hurricane, homeowners must approach home refinancing plans with extreme caution. If you cannot reduce your interest rate by two to three percentage points, there is no benefit to the borrower. The only beneficiaries are banks, tax collectors, and settlement companies.

With the recent historic drop in the prime rate, consumers have the ability to find interest rates near the five percent range. On the surface that may appear appealing, however if you are paying six percent and have 15-20 years left on the mortgage there will be no benefit. Having said that, if a borrower is still adamant about securing a lower rate, beware the hidden costs associated with the refinance. Reading the fine print paints a clearer picture of the costly and inflationary practice that benefits the tax base of government and delivers a windfall to lenders.

Unlike refinance plans in the past, with numerous banks competing for your business, free closing costs are mostly outdated. In today's market, banks will be adding these costs, collected up front and wrapped into the loan, incurring interest in order to keep the lender solvent. Closing costs will more than likely include points paid by the buyer, running from one percent to as much as five percent.

Costs such as appraisals, no longer done as a ‘desktop appraisal,' will require a licensed appraiser to visit your home. These appraisers will use neighborhood market comparables to help evaluate the home, factoring current market trends. Tax assessment values, which serve government, are generally not used in bank refinance appraisals.

Transfer taxes, title search, various filing fees to local, state government and mortgage lenders will fetch anywhere from $6,000 to $30,000. The outcome of the loan is dependent on the percentage of up front points, fees and taxes that might be required to seal the deal.

The homeowner may reduce their monthly payments by a few dollars monthly, but your 10, 15, or 20-year loan is now a thirty-year loan once again. The government and mortgage bankers make out; your property taxes just went up based on the new ‘purchase price,' closing the gap in monthly savings. In addition, banks just tied you up in long-term debt while collecting a nice chunk of cash up front for the privilege.

For some homeowners the refinance gambit will undoubtedly burden your mortgage with additional fees and costs that lenders will demand upfront.

(Crossposted The Political Octagon)