A mortgage closing can be a mystery to the average consumer. You sit at a table while lawyers and title agents throw documents full of legal mumbo-jumbo under your nose. Don't fret too much, though. You'll have an opportunity to review copies of the documents and ask any questions you may have before you sign. The lender has nothing to gain if you are not comfortable with the transaction. Once you’ve gone through the process when purchasing a home, a closing for refinance isn’t much different.
When a lender approves your refinance loan, it sends a commitment letter that details the amount it will give you, the terms of the loan, fees and closing conditions. Common conditions include proof of insurance, two forms of identification and, most important, a payoff letter from your existing lender. It will also give you instructions on scheduling closing. Schedule a date, then contact your existing lender. Request a payoff letter good through the date of closing. Also, request a per diem, which is the amount of interest accrued for each day the principal balance remains unpaid. If closing has to be rescheduled, simply add the per diem to the payoff figure for each day past the original date on the document. For example, if your payoff figure is $100,000 with a per diem of $100 and you close two days after the payoff date, your new payoff figure will be $100,200.
Whether you are closing with your current lender or a new lender, you will sign a complete set of new documents. This is because you are getting a new loan to replace your old one rather than modifying it. The type and number of documents vary by lender, but the two most important papers are the promissory note and the mortgage. The promissory note is your contract with the lender to borrow and repay the money. The mortgage is the instrument recorded with the county giving the bank the rights to your property in the event you can’t repay the loan.
At closing, you will sign a HUD-1 Settlement Statement. This document details all the money changing hands in the transaction. It tells you the principal amount of the new loan and the payoff balance of the existing mortgage. It also deducts fees for services such as documentation, searches, title insurance, attorney fees and escrow deposits. If there is money left over, it will be disbursed after closing. If there is a shortage between the new loan amount and the fees, you must bring a check to settlement.
Right of Rescission
In some cases, money is not disbursed immediately after closing. This is due to what is known as the “right of rescission.” You have three business days to change your mind and cancel the loan. This means if you close on Monday, the rescission period is Tuesday, Wednesday and Thursday, assuming none of those days are a holiday. The money is disbursed on Friday. The new lender will send the money to the existing one to pay off the loan. The right of rescission does not apply when you refinance a loan with the same lender on a property that isn’t your primary residence.