Mortgage Refinance: Closing Process Explained

My mortgage refinance has been approved by the lender. Now it’s time to pick a date for signing the papers. Is any day of the week better or worse than others? Yes, if you want to avoid paying extra interest on a large sum of money.

The federal law (15 USC 1635) says if you refinance the loan on your primary residence from a different lender, you have 3 days to rescind. That means if you change your mind after you signed the documents, you can still get out of it within 3 days. It also means that the lender won’t fund your loan until the 3-day rescission period is over.

There is no right of rescission on a purchase loan, or if you are refinancing from the same lender, or if the loan is not for your primary residence. The 3-day clock starts on the day *after* the loan documents are signed and all the necessary disclosures and notices are given. Saturday counts as a day but Sunday and bank holidays don’t count.

Here’s the usual chain of events when you close a mortgage refinance as practiced in my area:

Day 1 : You sign the documents and receive all the disclosures and notices.

Days 2-4 : Rescission period. Remember Saturday counts but Sunday and bank holidays don’t.

Day 5 : The escrow agent requests funding from your new lender. The new lender wires the money to the escrow account. You start paying interest on your new loan on this day. You are still paying interest on your old loan.

Day 6 : The escrow agent pays off your old loan by wire transfer if your old lender accepts payoffs by wire. If they don’t, the escrow agent sends them a check by FedEx. The escrow agent also records the new mortgage with the county recorder’s office. You are still paying interest on your old loan until it’s paid off.

Day 7 : If the payoff is sent by FedEx, the old lender receives the payoff check. The old loan is paid off. You stop paying interest on your old loan.

You start paying interest on the new loan from the day the loan is funded. You stop paying interest on the old loan on the day it’s paid off. There’s going to be at least one day of overlap for which you are paying interest on both loans unless your escrow agent pays off your old loan by wire on the same day your new loan is funded. You want to make sure you minimize that overlap to only one day or maximum two days.

Here’s a little calendar for the loan refinancing events taking into consideration the 3-day rescission period but assuming there is no bank holiday involved. Each number represents a day on which the loan documents are signed. Just follow the number. For example, if you sign the docs on a Tuesday, the rescission period ends on Friday; the new loan will be funded on the following Monday; and the old loan will be paid off on the following Tuesday (by wire) or Wednesday (by check).

Mon Tue Wed Thu Fri Sat Sun
Docs signed 1 2 3 4 5
Rescission period ends 4 5 1 2 3
New loan funded 2 , 3 4 5 1
Payoff wire sent OR check FedEx’d 1 2 , 3 4 5
Old loan paid off (by wire) 1 2 , 3 4 5
Old loan paid off (by check) 1 2 , 3 4 5

The calendar shows that Monday is a bad day for closing because your new loan is funded on Friday, and you start paying interest on it but your old loan isn’t paid off until the following Monday or Tuesday. You pay interest on both the old loan and the new loan over the weekend.

If payoff is done by a FedEx’d check, signing the docs on Friday is also pushing it. If all goes well, the old loan is paid off on the next Friday. If there’s a delay by one day, you will also pay interest on both loans over a weekend.

Signing the docs on Tuesday or Wednesday is the best for closing a mortgage refinance because the new loan is funded on Monday and you have the entire week to work with. Thursday is also a good day but not as good as Tuesday or Wednesday.

If you have to sign the docs on a Monday, make sure to specifically ask the escrow agent not to request funding on Friday.

Next week, after I sign the loan documents, I will explain what those documents really mean.

[Update on March 4, 2008]: I asked the escrow agent and she said they would pay off my old loan using a wire transfer. That way it cuts down the interest overlap to only one day. She also said that not all lenders accept payoffs by wire. I revised the calendar accordingly.

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Comments

  1. indexfundfan says

    tfb,

    Questions for you :

    1. Is FedEx always involved to pay off the old loan? Or is it only for the escrow company you are using? Wouldn’t the escrow agent wire the money to the old lender?

    2. Based on your chart, I couldn’t figure out why Thursday is not a good day to close.

    Thanks.

  2. Harry Sit says

    I don’t know the answer to the first question. All my refi’s are done at the same escrow company and they always used FedEx. I’m interested in hearing what others’ experience is.

    Thursday is also a good day, just not as good as Tuesday or Wednesday. If you sign the docs on Thursday, you have a 1-day cushion for any delay. Tuesday and Wednesday have a cushion for 2 days. In the order of preference, it is

    Tue/Wed > Thu > Fri >> Mon

  3. indexfundfan says

    Thanks. I am asking all these questions because my refi will close on a Thursday. Also, this is the first time I am not doing a refi with the same lender.

    I think a wire was used for my last refi, but I could be wrong.

  4. Harry Sit says

    When I sign my documents, I will ask them about paying off the old loan by wire.

    I hope you got a good rate too!

  5. ManInTrouble says

    I have just refinanced my loan. The paper was signed on 5/6/09 (Wednesday). According to the final closing statement, I start paying interest to the new lender on 5/11/09 (Monday). The closing date is 5/12/2009 (Tuesday). But when I contacted the old lender, I was told that they received the funding on 5/15/2009 (Friday) and therefore, they charged me interest for 14 days.

    I understand that it’s typical to pay 1 or 2 days of overlap interest during refinance. But 4 days of overlap interest seems unusual (especially when the closing date falls on a Tuesday).

    Questions are:
    1. If the closing date on the statement is 5/12, should I pay the interest for 5/11?
    2. What could have caused the delay between 5/12 and 5/15? Any ideas?

  6. Harry Sit says

    @ManInTrouble – (1) Yes, because typically the loan is funded the day before the closing date. (2) You should ask your settlement agent how and when they did your payoff. If they sent a wire, your old lender should’ve received it on Tuesday 5/12. If they FedEx’d a check, your old lender should’ve received it on Wednesday 5/13. If your settlement agent didn’t send payoff on time, they should pay you the extra interest. I had this happen to me once. I complained to the settlement agent. They paid me the extra interest because they caused the delay. On the other hand, if your settlement agent did the payoff on time, you should get the wire or FedEx tracking number and complain to your old lender for crediting you too late.

  7. ManInTrouble says

    I finally got the issue resolved, but it ain’t easy.

    I asked the settlement agent about the overlap interest – no response at all. I escalated the issue to the branch manager. She said she needed some time to investigate. Three weeks later, she still could not provide the details of the closing date to explain the excessive overlap interest. I finally have to talk to the regional manager to get it resolved. No details was given, but they offered me a refund check.

    Once again, I want to thank you for your comments and support. Double thumbs-up for the refinancing event calendar.
    Bravo!

  8. Danny says

    My situation is this: I closed 6/23, funds were suppose to disburse 6/30 and for some reason they are delaying. What is my recourse?

  9. Shirley Siegrist says

    What do you think of closing on a refinance by notary? Lender said they will send a notary to the house. Who is responsible to explain the terms and legalities of the forms signed? Somehow it does not seem like the best practice.

  10. Harry Sit says

    Shirley – If I have a choice, I would prefer to close it in a local settlement agent’s office and face a real settlement agent. A traveling notary can make some explanation but they don’t know all the answers. See my experience in Mortgage Refinance Completed.

  11. suzanne lustgarten says

    confused on interest due on estimated closing statement

    On my estimated closing statement which was due to close 10/26
    they charged me interest on old loan 10/1 to 11/1 (interest for whole month)
    even though I made october 1 payment on old loan which I know pays interest for september. The interest i am charged on new loan is 10/26 thru 10/31.
    So on old loan shouldn’t i just be charged 10/1 thru 10/26?

    1.On old loan aren’t you just charged interest up until the date the loan funds?

    2. Is it normal procedure on a closing statement to make the borrower pay a full month interest on the old loan for the month the loan closes? Do you get a credit back when they receive funds paying off old loan since you paid interest for the whole month on old loan at closing?

  12. Glen Furumizo says

    I signed on 11/2, closed and funded to escrow on 11/6 they are now telling me my old loan will be paid off on 11/16. 10+ days of overlap interest. Can they do this?

  13. ManInTrouble says

    Glen,
    Who are “they”? The title company or the old lender? How did “they” explain to you about the discrepency between the closing date and the paid off date?

  14. Glen Furumizo says

    The Title co is Escrowpoint, Inc.
    23282 Mill Creek Dr., Ste. 340
    Laguna Hills, CA 92653
    The old loan is BOA.
    When the loan funded on Fri after noon they said 48hrs but tues came then they said Weds was a holiday so thurs. Then thurs came and they said it will be paid off on the following monday 11/16. I explained it was unacceptable and they said it is no fault of their own and they will turn it over to a manager to look into.

  15. Harry Sit says

    Glen – Sounds like the title company seriously dropped the ball. You shouldn’t have let the new lender fund the new loan on a Friday to begin with. Even that, if you trace the little calendar in the post, your old loan should’ve been paid off on Tuesday Nov. 10 at the latest. Complain to the title company. Don’t take no for an answer. See how ManInTrouble got a refund in comment #7 above.

  16. Den says

    My refinance was closed on 2/2. The old lender received the fund on 2/2 afternoon. Do I need to pay my old lender interest for 2/2?

  17. steve says

    if refinancing with the same bank why should there be a need for a wire or check payoff. closing was suppossed to be on the 30th buy didnt happen and now with the holiday weekend am i going to be paying pre paid interest for the whole month of june?

  18. Chris says

    I have recently closed on a refi loan (10/22) and signed all the new loan docs. Funding was supposed to be (10/25) but when contacted the title company about repaying old loan, they said the lender needs additional documentation. Contacted the lender and said they need additional info before they will fund.

    Can they legal delay funding even after all the final loan documents were signed?

  19. Harry Sit says

    Chris – Yes they can delay funding if they find some documents not to their satisfaction. The law only says they can’t fund until a certain date. It does not require them to fund as soon as that date arrives.

  20. cjs755 says

    I’m closing on my refinance loan next week. I told my credit union that I want to pay my taxes. My loan amount is $149k, which includes closing costs. But when they sent me my committment letter they increased to $157(taking account escrow). The committment letter said that I can now pay my taxes but my loan amount is still $157k, and they will pay me back the escrow amount included in the $157k. But now I’m paying interest on the $157k and not the $149k. When I can called to see if I can change the loan amount they said I would have to start application process from the beginning. Can they change the loan amout the day of closing?

  21. Harry Sit says

    cjs755 – If you don’t mind the slightly higher monthly payment, you can just make a one-time principal payment of $8k immediately after closing. Your loan will be paid off sooner than 30 years (or whatever your term is) and you won’t be paying interest on the higher amount. That will be the easiest way to handle this.

  22. Paulin says

    My refinance will be closing in next couple weeks, since both Fridays are holidays during the time period, will Monday closing be best to avoid paying overlap interste?

    Thanks a lot for your advise!

  23. nikki says

    what if the old lender comes back after a few weeks and state that you still owe them money. This is even after all documents were signed. Checks cashed. New lender is in place and you have started paying the new lender. What are my options? And what is “po shortage”?

  24. Harry Sit says

    Yes it’s possible the payoff amount was less than a full payment. PO stands for payoff. You will have to pay them the shortage and get them off your back. How much are you short?

  25. Tatyana Sannikova says

    My refinance with the same lender will be closing on Feb25, Friday. According to MA law it takes 3 days ( Sat, Mon and Tuesday) till my old loan will be closed. So my new loan will start on Wed, March 2nd. Since I made Feb 1 payment on old loan do you think it would be better to close on March 1st, Tuesday?

  26. Confused says

    Hi, Thank you for sharing your experience. I am new to the refinance process and just signed my closing document online more than two weeks ago. However, nothing has happened ever since. The new lender (ally) didn’t transfer the fund to the old lender (gmac) and I am still paying my old mortgage. Is this normal? Based on your article, the fund transfer should have happened within a week once the closing document was signed.
    If anyone can provide any information, it will be greatly appreciated. Thank you.

  27. Harry Sit says

    @Confused – The documents you signed online are probably just disclosures, not the closing documents. You will have to sign the closing documents in person in front of a notary public. Your new lender will notify you when it’s time for that step. Just wait.

  28. Dazed says

    This is a good article. I have questions in my specific situation. My LO is asking when I would like to close. According to the article, tues/wed is best but if I choose that for next week seeing how the holidays are involved, how is my scenario impacted? Should I just postpone until the following week as I understand that closing the beginning of the month is also very favorable from a prepaid interest perspective.

    One curious item, LO said that my loan would fund on or after 11/29. That being the case wouldn’t it be best that I close ASAP?

  29. Harry Sit says

    @Dazed – You count the days: leave 3 days after you sign for rescission. Next Tuesday is still the best day (Wed, Fri, Sat for rescission, OK to fund on Monday).

  30. Dazed says

    Thanks for the reply! I went ahead and scheduled for tues, 11/22 to which my LO promptly replied that closing is scheduled for 11/23, wed??? Anyway, not sure it matters at this point, but isn’t Friday, 11/25 a bank holiday too (i.e., rescission would not count that day either?

  31. WaitingForFunding says

    Thank you for a very comprehensive overview. Im in the process of refinancing a loan. Got my clear to close last Tuesday morning, closing papers drawn late Wed and sent to Title co. We signed closing papers on Thursday morning, and were told that a three day rescission period will take into effect before funding happens the following Tuesday. The signed closing papers was overnighted to lender Thursday by the escrow officer. Im assuming that within the three day period, that they will review the papers sent by title co. Apart from reviewing the signed docs, will the lender undertake any other activities such as re-running credit, verifying employment, etc…etc.. before funding and during the rescission period? Or are we safe to say that they will fund the loan provided that they are OK with all the signed papers? I’m particularly concerned about credit report rerun since our DTI is about 4% below the threshold. The last credit they ran on me during the loan process is exactly 61 days from the funding date or 60 days from the rescission date. Not sure if ALL lenders ALWAYS re-run credit before funding…and if this could pose as an issue if my DTI change. For the folks that are reading this and have done a refi – did they re-pull credit for you the day of funding? or during the rescission period?

  32. Jennifer says

    I refinanced my primary home in September. Part of the funds to be disbursed included a tax payment. However, when contacting the tax authority I was told that the check dispersed to the tax authority was returned to the escrow company as the tax was not due and the amount disbursed far exceeded what will be due in April. The escrow company has acknowledged the receipt of the funds back into escrow but have yet to resolve the funds (financed by my loan) that are sitting in escrow. They have sat on these funds since October although I call them every week for a status of these funds to no avail?

    Any suggestions?

  33. Harry Sit says

    @Jennifer – I had a similar situation happen to me once before. The old lender paid the tax but it wasn’t reflected in the records yet so the new lender had me pay again in the escrow. The tax authority got paid twice but they sat on the extra money for a long time. They said it was their policy to wait 8 or 10 weeks. Eventually they returned the money to the escrow company which promptly returned it to me.

    Is this escrow company unrelated to the lender and they are just doing disbursements? Or is the escrow just part of your regular escrow held by your lender for tax and insurance going forward? What’s their explanation for not returning the money to you? Are they waiting to still pay the tax when it’s due?

  34. Nancy says

    We decided to try refinancing with an online company and it has turned into a nightmare. Do we have any options at this point? Our current issue is that our loan was not funded until 12/22 but as of this morning neither our mortgage with Bank of America nor our HELOC with PNC have been paid off. I have requested pay off information from our loan officer. Our right to rescind expired on the 17th. Here’s a few of the gory details.

    12/12 1st closing. Errors: 1) Closing costs overstated by over $2300 2) Most of documents dated 12/14 and 3) Loan amount sometime $235K, sometime $237K. Instructed by loan officer to complete closing and that corrected HUD documents would be emailed to us to sign.
    12/14 Since we still had not received corrected HUD documents after multiple emails & phone calls, we emailed that we were planning to rescind our loan at noon on the 15th if we had not received corrected documents.
    12/14 After receiving our email about rescinding the company re-schedule the notary for very late at night Issues: 1) Additional $1500 charge added to HELOC payoff, 2)Documents now dated 12/13 and 3) not all the documents we signed at 12/12 closing were included
    12/15 Corrected HUD emailed with $1500 charge removed. We signed and emailed and faxed back.
    12/22 loan finally funded

  35. M. Singri says

    I am currently going through refinancing. My lending agent has requested sign the document with errors. It happened like this. The first set of documents had names misspelled. So i requested him to correct and send them. I signed the second set of documents and sent it. Now he is asking for me to send first set of documents with errors. He tells me that he is required to prove that he had sent the same and for that he needs signatures on these papers. Is this valid? How do I know that these documents will not be misused? Can you please answer?

    Thanks in advance.

    • Harry Sit says

      If it’s just misspelled names you just cross them out and write in the correct spelling.

  36. John Hutton says

    Can a mortgage company choose not to fund a loan after the closing papers have been signed? Can they add additional requests for documents after the closing?

    • Harry Sit says

      John – Yes. Nothing is official until the papers are recorded. If they don’t like something they don’t fund.

  37. JR says

    First of all, great info.
    For Day 7 (old lender receives payment), are you required to pay interest on the day the old lender receives payoff ? I’m expecting the title company to call me Monday 07/23 to schedule doc signing and would like to minimize overlap … not sure about Fedex/wire situation yet.

  38. Hotelcharlie2002 says

    We are closing on our Refi on Monday. It is an online company so they are using a traveling notary. We are planning on financing a new car on Tuesday. Is it safe to assume they will not be pulling our credit again after we sign? Would having a new car loan be enough of a reason for them not to fund the loan?

  39. Mike says

    After signing there is a 3 day wait period that they have to wait per law before paying off the original company. This is the time for consumers (you) to choose to not to go ahead. Thus even though you have signed the funding will be delayed. Thus if you can delay for 3 days, I would think that is a safer bet.

  40. Evelyn says

    I received my refinance documents for $120,000 in the mail today. I have not signed the documents. The document listed all my debt which is extensive. Seeing the list and amounts were overwhelming. The equity in my home ($160,000) should cover this debt. I just realized that this is an option that I did not mention. Would it be difficult to call the company to redo the documents to include paying off my debt?

  41. Harry says

    Evelyn – What documents are they? If they are the disclosures at the beginning of the process, it’s possible to change your requested loan amount. If the loan is already approved and you are ready to close, it may be too late. Doesn’t hurt to ask the loan officer or broker though.

  42. Evelyn says

    Harry, thank you for responding. I hope its not too late. The forms are: Mortgage Loan Rate Lock Policy, Underwriting Approval Conditions, Approval of Mortgage Financing Notice of Mortgage Commitment, Information Disclosure Authorizations, Credit Inquiry/New Credit Affidavit, Servicing Disclosure Statement, SSN Verfication, Request of Transcript of Tax Return, Uniform Residential Loan Application, Good Faith Estimate,Provider of Service Addendum, and Trut-in-Lending Disclosure Statement. The forms are the first documents I received regarding the refinance.

  43. mindy says

    My loan just got funded but the disbursements do not add up to my loan amount. There is a difference of about 750.00 owed to me as far as can tell. I have contacted the new lender and they are looking into it but at the same time they are stating this is a courtesy and they are trying to negotiate the figure. The figure is the figure as far as I am concerned all checks and payoffs should add up to the amount of the loan I am responsible for right? Am I missing something?

  44. Victor says

    My refinance loan got closed two weeks ago but it didn’t get funded for no apparent reason. Am I correct that I don’t have to make payments on the new loan since it didn’t get funded? (I am still making payments on my old loan). Thank you!

  45. Bill says

    … i’ve read that many people recommend closing near the end of the month to minimze your pre-paid interest costs for a refinance, but if your current payment (last months interest + next months principal) is more interest than principal, it would seem that closing earlier in the month would make more sense. Am I looking at thinks backwards somehow?

  46. Harry says

    Bill – Although closing near the end of the month will lower the prepaid interest paid at the time of closing, it only means a higher payoff amount paid out of the new loan. One way or the other you will have to pay one month worth of interest, with a couple of days of overlap. Since when you refinance, you are usually refinancing to a lower rate, the sooner you start paying the lower rate the better. There’s no reason to delay it to near the end of the month or if you already at the end of the month, to delay it to the beginning of the next month.

  47. Harry says

    Clyde – The order of preference is Tue/Wed > Thu > Fri >> Mon. Saturday would be between Friday and Monday. It’s the second worst, only a little better than signing on Monday.

  48. Boshyd says

    In the situation where we pick Tuesday, why does the new loan get funded on Monday instead of Saturday? Banks don’t issue funds on Saturday is it?

  49. Harry says

    Correct. Even though some bank branches open on Saturdays, Saturday is not a business day for banks. Transactions done at a branch on a Saturday get Monday’s date.

  50. Rachael says

    Not sure you can even help me with this but….

    My sister recently refinanced ($250,000) but the 1st mortgage ($250,000) never got paid off. The mortgage broker and Title company are nowhere to be found. How can this even happen? Is she responsible for $500,000 now? If the deed from the 1st lender was never sent to the new lender is she still held accountable?

  51. indexfundfan says

    In all my refinance experiences, the date of signing does not really matter. I try to sign as early as possible or at a date/time convenient to me, and then I would request the title company to fund the loan on a specific date.

    So even if you sign on a Monday, just tell the title company that you want funding to take place only on the following Monday. From my experience, they are happy to comply (do check that it is not beyond the rate lock date).

  52. coolwater says

    I am closing next Friday. I have not seen any closing document yet. Do I get to review the closing document a couple days before? Also, my lender located in different state. How do we sign papers? I need your help. Thanks!

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