Answer: No! The regulators are not doing you any favors by grouping daily interest that we all pay weather we refinance or not, into the closing cost section. They are just adding more confusion to an already confusing choice.
You pay interest for every day that you are borrowing the funds for your home. When you refinance your home, you skip a payment every time. However you cannot skip the interest portion of that payment. So pre paid interest is not a cost, its something you pay daily already, its just switching to a new lender, and since you wont be making a payment to them that you would normally pay your old lender, you will pay it in closing, but only the interest portion of it.
If you make a payment on the first of November, that pays for the interest from Oct 1st to Oct 31st because mortgages are paid in arrears. If your new loan funds on the 20th of Oct, you will have 11 days of pre paid interest. This money will go to the new lender, and your first payment wont be due until December 1st. You will also pay interest from the first of Oct to the 20th of Oct in addition to your principle balance on your most recent statement to your old lender.
Skip Nov, pay interest to your old and new lender for Oct and double interest for one day, the day it funds.
You pay interest for every day that you are borrowing the funds for your home. When you refinance your home, you skip a payment every time. However you cannot skip the interest portion of that payment. So pre paid interest is not a cost, its something you pay daily already, its just switching to a new lender, and since you wont be making a payment to them that you would normally pay your old lender, you will pay it in closing, but only the interest portion of it.
If you make a payment on the first of November, that pays for the interest from Oct 1st to Oct 31st because mortgages are paid in arrears. If your new loan funds on the 20th of Oct, you will have 11 days of pre paid interest. This money will go to the new lender, and your first payment wont be due until December 1st. You will also pay interest from the first of Oct to the 20th of Oct in addition to your principle balance on your most recent statement to your old lender.
Skip Nov, pay interest to your old and new lender for Oct and double interest for one day, the day it funds.
IMPOUND/ESCROW ACCOUNTS
If you let the lender pay your taxes and insurance installments for you, you will have to deposit funds into your new escrow/impound account. We cannot transfer your existing escrow/impound account balance from your old lender so you will get that money refunded to you by your old lender after we pay them off.
The amount is determined by a formula used to collect enough funds from you so the lender will have sufficient funds to pay your home owners insurance premium and property tax bills when due + one extra month. After you make 12 payments, the servicer will reconcile your escrow account and send you back any overage, so we will no longer have one moth extra after sending you the overage.
We also pay the bills in the month before we get your payment, so it seems like two extra months. For example Oct 1st tax bill, we are going to pay it before you make your Oct payment. If you fund in Oct, we are going to collect 4 months of taxes + Oct 1st tax installment and here is why. The next payment is due March 1st, your first payment will be due by Dec 15th. You pay Dec, Jan, Feb, we make the payment to the tax collector. That is 7 months you put in and 6 months we are sending out, leaving us with the one month overage.
If you have further questions about this, you can email me questions anytime at Mhansen@OptimumFirst.com or call me directly at 714-684-6903.
