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Old 11-21-2011, 04:06 PM
 
41 posts, read 355,319 times
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I'm a little confused about interest charges at closing and the date of the 1st payment on a new loan
My current lender takes mortgage payment from my checking account on the 1st of every month. I'm currently in the process of refinancing and should be closing beginning or the middle of the month.

Can someone explain what happens if I close on:
1. first day of the month?
2. middle of the month?
3. last day of the month?

I'd like to know who do I pay (old lender, new lender, both) and when my 1st payment to the new lender should be due.

Thanks.

Last edited by Nikon5400; 11-21-2011 at 04:20 PM..
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Old 11-21-2011, 07:47 PM
 
Location: Mount Laurel
4,186 posts, read 10,275,151 times
Reputation: 3499
Quote:
Originally Posted by Nikon5400 View Post
I'm a little confused about interest charges at closing and the date of the 1st payment on a new loan
My current lender takes mortgage payment from my checking account on the 1st of every month. I'm currently in the process of refinancing and should be closing beginning or the middle of the month.

Can someone explain what happens if I close on:
1. first day of the month?
2. middle of the month?
3. last day of the month?

I'd like to know who do I pay (old lender, new lender, both) and when my 1st payment to the new lender should be due.

Thanks.
You continue to pay your mortgage as usual. (Doesn't matter what day you closes). Closing company will know the payoff of loan balance for up to day of closing.

New payment info will be given to you at closing when you sign the paperwork. In most case, you get a "grace period". In other words, if you close on the last day of the month, your new payment isn't going to be due on the next day.

To be clear, after you close. You will no longer owe the old finance company anything. Do not send them any more money or if you have automatic payment, turn that off. When I was with Chase, they actually removed my online account from the system.
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Old 11-21-2011, 09:13 PM
 
41 posts, read 355,319 times
Reputation: 23
Quote:
Originally Posted by sj08054 View Post
You continue to pay your mortgage as usual. (Doesn't matter what day you closes). Closing company will know the payoff of loan balance for up to day of closing.

New payment info will be given to you at closing when you sign the paperwork. In most case, you get a "grace period". In other words, if you close on the last day of the month, your new payment isn't going to be due on the next day.

To be clear, after you close. You will no longer owe the old finance company anything. Do not send them any more money or if you have automatic payment, turn that off. When I was with Chase, they actually removed my online account from the system.
I thought mortgage interest is paid in arrears. So, if I close at the end of the month, I'll owe the old lender interest for that month and that money either need to be added to my new loan or I'm expected to bring it to closing. (and I wonder if bringing the money to closing instead of adding to the loan makes more sense so that I don't pay double interest)

Also, what exactly is the "closing company"? An abstract company doing my title and the charges they provided me with include title, endorsements, recording, wire fee and protection letter, tax certificate, but no closing fee. The other abstract company I contacted had the same charges but they were willing to waive a couple things worth $60, but again no closing fee. Does this sound right or I'll be stuck with some additional charges at closing?

I'd really like to get answer to 3 questions I have, this way I'll have a very good idea what is due an when.

Thanks.

Last edited by Nikon5400; 11-21-2011 at 09:22 PM..
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Old 11-21-2011, 10:14 PM
 
Location: MID ATLANTIC
8,207 posts, read 20,387,588 times
Reputation: 9477
Yes, mortgages are paid in arrears, with the exception of the interest paid on the new loan at closing. So if your existing rate is higher than the new rate, it's best to close sooner than later. Plan on bringing your mortgage payment to the table for the previous month. "Skipping" payments can happen, but not the best thing to finance a mortgage payment over 30 years, right?

Trust me, you'll drive yourself crazy which is better when it really is an insignificant difference.
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Old 11-22-2011, 01:26 AM
 
Location: Mount Laurel
4,186 posts, read 10,275,151 times
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Quote:
Originally Posted by SmartMoney View Post
Yes, mortgages are paid in arrears, with the exception of the interest paid on the new loan at closing. So if your existing rate is higher than the new rate, it's best to close sooner than later. Plan on bringing your mortgage payment to the table for the previous month. "Skipping" payments can happen, but not the best thing to finance a mortgage payment over 30 years, right?

Trust me, you'll drive yourself crazy which is better when it really is an insignificant difference.
SmartMoney said it best. Refinancing is for long term. If you start nickle and diming every pennies, you will drive yourself nuts (like looking at rate as you are about to close).

You will not exactly what's you need to bring to the table a day or 2 before closing.
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Old 11-22-2011, 06:08 AM
 
41 posts, read 355,319 times
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Quote:
Originally Posted by SmartMoney View Post
"Skipping" payments can happen, but not the best thing to finance a mortgage payment over 30 years, right?
Trust me, you'll drive yourself crazy which is better when it really is an insignificant difference.
What exactly are you talking about here? Are you talking about the situation when I pay interest at closing ( new and old loan) and then don't have a mortgage payment for more then 30 days?

I'm refinancing for 15yr and I'm taking lender's credit which should pay for most of my closing costs. I'm taking this credit not because I need this money but because I want to be able to refinance 3 months later if the rate drops enough so it'd make sense, while it'd take more than 100 months for the bank to recoup this money. So, I'll be watching the rate all the time

It'd really be a lot clearer if someone could answer the 3 questions I posted in original post.

thanks.

Last edited by Nikon5400; 11-22-2011 at 06:17 AM..
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Old 11-22-2011, 07:51 AM
 
Location: Mount Laurel
4,186 posts, read 10,275,151 times
Reputation: 3499
Quote:
Originally Posted by Nikon5400 View Post
I'm a little confused about interest charges at closing and the date of the 1st payment on a new loan
My current lender takes mortgage payment from my checking account on the 1st of every month. I'm currently in the process of refinancing and should be closing beginning or the middle of the month.

Can someone explain what happens if I close on:
1. first day of the month?
2. middle of the month?
3. last day of the month?

I'd like to know who do I pay (old lender, new lender, both) and when my 1st payment to the new lender should be due.

Thanks.
If your current lender payment is due on the 1st of the month, it's not actually due on the 1st. There is a grace period.

1. If you close on the first day of the month. Ask your closing company, they may tell you not to make any payment for the next month if you want to close on the first day of the next month.

2. If you close on the middle of the month. It's best for you to make your usual payment I you normally would (in case you don't close).

3. Last day of the month. Again, make payment like you normally.

Closing is a set date. The closing company will have the final payout numbers from your current lender and a check is cut for that lender at closing.

As for when your new payment is due. You are going to sign a new 15 years loan term and it will be spelled out for you stating when/how much the first payment is.

Are you working with a loan processor for your new loan? These are the types of question that you should be talking to them about.
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Old 11-22-2011, 09:27 AM
 
3,578 posts, read 6,325,121 times
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The mistake people make is even though they "skip" a month of payments when refinancing, that month of interest is added to the principal.

People (if they have the money) should immediately pay that "month miss money" directly into the principal.

So I just refinanced my remaining $395k mortgage. I don't have to make a payment till Feb 2012 (I am skipping Jan 2012 payment ).

So my refinance loan is actually $396800. So an addition $1800 is added to the principal since i missed the Jan payment. (I have already paid my Dec 2011 payment).

So come Feb 2012. I will make my regular new payment. Plus directly pay the additional $1800 extra into the principal to make up for the interest added for "skipping a payment".
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Old 11-22-2011, 12:10 PM
 
Location: MID ATLANTIC
8,207 posts, read 20,387,588 times
Reputation: 9477
Quote:
Originally Posted by aneftp View Post
The mistake people make is even though they "skip" a month of payments when refinancing, that month of interest is added to the principal.

People (if they have the money) should immediately pay that "month miss money" directly into the principal.

So I just refinanced my remaining $395k mortgage. I don't have to make a payment till Feb 2012 (I am skipping Jan 2012 payment ).

So my refinance loan is actually $396800. So an addition $1800 is added to the principal since i missed the Jan payment. (I have already paid my Dec 2011 payment).

So come Feb 2012. I will make my regular new payment. Plus directly pay the additional $1800 extra into the principal to make up for the interest added for "skipping a payment".
Absolutely! This perception that the "skipped payment" is a savings, actually costs a bundle.
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Old 11-22-2011, 09:03 PM
 
41 posts, read 355,319 times
Reputation: 23
Quote:
Originally Posted by aneftp View Post
The mistake people make is even though they "skip" a month of payments when refinancing, that month of interest is added to the principal.

People (if they have the money) should immediately pay that "month miss money" directly into the principal.
I understand the rational, but is it really the best thing to do when mortgage rates are below 4% and inflation is around the corner? My 15yr fixed refinance rate is 3.375% and I debate whether I made a mistake not going for 30yr 3.875%.
I think when rates go up (2x? in a couple years?) I'll be able to get the same rate or higher on a CD account. Don't you agree?

Last edited by Nikon5400; 11-22-2011 at 09:12 PM..
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