Sometimes the best blog posts are the frequently asked questions from our clients. With interest rates at all time lows, we’ve been doing a ton of refinance closings. Here are 5 questions which often come up.
1. Why does the payoff of my existing mortgage seem higher than I thought?
In many cases, borrowers will focus only on the “principal balance” figure in their mortgage statement. However, this figure does not provide the complete figure necessary to pay off the loan. You must also pay any unpaid interest calculated up to the time that they actually receive the payoff check. Mortgage interest is not like traditional rent in which the monthly payment is for the upcoming month. Mortgage interest is paid in arrears, or backwards. Thus, your monthly mortgage payment is allocated partially to principal, but also pays the daily interest accumulated during the last month.
Therefore, if your refinance loan is funding on August 15, we must pay off your existing principal balance plus the interest that accumulated from August 1 to August 15 (plus additional days necessary to get the payoff check to the bank). That unpaid daily interest makes your payoff is higher than just the principal balance. Frequently included in your payoff is also a $75.00 registry discharge recording fee and a fee to issue a payoff statement (usually between $10.00 to $60.00).
2. What is an escrow account and why is my lender collecting so much money for it?
An escrow account is established with a lender to pay for recurring expenses related to your property, such as real estate taxes and homeowner’s insurance. It helps you to anticipate and manage payment of these expenses by including these expenses as a portion of your monthly mortgage payment. At the time you establish an escrow account, your annual real estate taxes and homeowner’s insurance are estimated, based on your most recent bills and premiums. An incremental amount of these expenses is added to your monthly mortgage payment, in order to cover these expenses when they are due.
Each year, your escrow account is reviewed to determine if the amount being escrowed each month is sufficient to pay for any change in your real estate taxes or homeowner’s insurance premiums. At closing, we will collect sufficient funds to start your escrow account, typically 2-3 months worth of real estate taxes and up to a 12 months of homeowner’s insurance.
3. Why is my lender escrowing money for my homeowner’s insurance if I have already paying it?
Although you have paid the first annual premium in advance, the lender needs to begin collecting money to pay next year’s annual premium. Since the lender will be paying the annual premium for you next year, they need to be sure that they have enough money in their account to pay that bill approximately one year from your closing. Because you will not make a mortgage payment in the month after your closing occurs and the lender usually pays the bill in the month before it is due, you will likely only have made 10 payments by the time they pay the bill. Thus, they need to collect 2-3 months at closing so that they will have sufficient funds to pay the bill.
4. When will my refinance proceeds be available?
Federal law requires that borrowers of a refinance loan must be given three days to rescind the transaction. This is commonly referred to as the “three-day right of rescission.” You cannot waive this right of rescission. Therefore, your lender cannot fund your loan until such rescission period has expired. When calculating the rescission period, the day that the closing occurs, Sundays and Holidays are not rescission days and are not counted. Thus, if your closing occurs on a Thursday, it will fund on the following Tuesday (Friday, Saturday and Monday being the three rescission days – Thursday of closing and Sunday not counted).
5. Should I pay the next tax bill due after my closing?
If your next tax bill is due within 60 days of closing, our office will administer payment that tax bill. The lender will require our office to take the necessary funds from you at closing and pay that tax bill. This is the case regardless of whether you are escrowing your taxes with the lender or not. If you are escrowing taxes with the lender, our office will administer payment of tax bills due within 60 days and the lender will administer payment of any tax bills thereafter. If you are not escrowing your taxes, we will administer payment of tax bills due within 60 days of closing, and you will have to pay any tax bills thereafter.
If you would like us to close your refinance loan, please contact us at 781-247-4250 or at [email protected].
