No, the payment is actually made through the close of escrow in the form of prepaid interest. Let’s dive into this a little further: when you pay off a mortgage, the lender will add in what’s called prepaid interest on to the current principal balance and the payoff demand will be reflected higher than what the principle balance is because the lender has to account for how many days worth of interest is due for them to get paid off and the subsequent new loan to go into place.
For example let’s say you have a loan balance of $302,000, your payoff demand comes in at $305,334 additional $3344 is the interest accrued on a daily basis from the time it estimates for them to be paid off. This lender will also prorate this money depending on how quickly the new lender you’re working with on your refinance can get your new loan closed. Using the month of May, let’s say you’ll have no payment to make in the month of June and the first payment on the new loan your refinancing into will not be due and payable until July 1. No payment to make June 1 right? Wrong that payment is made July 1 because all mortgage interest paid is in arrears. That’s right when you make a mortgage payment on the first of the month, it is is for the previous month’s interest due.
No, you don’t really skip a mortgage payment when refinancing, but it feels that way on the pocketbook
This is something to be aware of when you’re doing your next refinance on your primary residence, second home or investment property.
If you’d like to go over some more specific figures on refinancing or getting a complementary mortgage rate quote, start with us online today! Contact Scott.Sheldon@nafinc.com to get started.
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