I am often asked this question during a refinance from homeowners.
Your mortgage payment is paid in arrears. For example, your February payment is paying January’s interest. Remember when you bought or refinanced your home and the loan originator stated, “you’re going to skip one month’s payment” or “you won’t have another payment due until the following month after closing”? Well, this is where that payment essentially catches up with you. (Technically, it’s not “that” payment, you’re just always paying the previous month’s interest).
The escrow company will order the payoff from your current mortgage servicer (where you make your mortgage payments to). The interest is prorated to the day of funding/closing.
There may be additional fees included in your payoff that the lender will charge, such as:
- pay off transmission fees
- unpaid late fees
- prepayment penalties (you may want to consider delaying a refinance if possible until the prepay period is over if you have a prepayment penalty)
Often times, the escrow company will request the payoff with a few additional days factored in to act as a cushion. The escrow company may (should) order an updated payoff closer to the signing date in order to provide the most accurate figures possible. The lender being refinanced will refund any difference in your favor.
In addition, if you have an escrow reserve account for taxes and insurance, you will receive a refund of the balance a couple weeks after closing.
At your signing appointment, ask to receive a copy of your payoff statement. Check to see how recently it was requested. If it was ordered at the beginning of the transaction and you have since made a mortgage payment, you can ask the closer to order an updated statement prior to closing (with a refinance, there is a three day right of rescission that takes place, so there should be enough time for this to take place with most lenders).
If you’re thinking about refinancing or have any questions, I’m happy to help you!
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About Rhonda Porter
My 86 yr old mothers mortgage payment is $1100, $126 of that goes to principal and $657 to interest while the rest is listed as fees. She’s now legally blind and lives on SS which is $1200 a month. Is there an advocate that we can speak to or any legal recourse for this kind of blatant abuse of an elderly woman?
Hi EJ, Lenders cannot discriminate against someone based on their age. Did she qualify for the mortgage when she obtained it?
I’m sorry for your Mother. Here’s a resource if she lives in Washington state: https://dfi.wa.gov/homeownership