|Posted on March 31, 2016 at 8:00 PM|
When you decide to refinance a mortgage loan, you have to pay out the existing loan in order to move forward. And most mortgage contracts will have stipulated the terms of a payout especially regarding the fees and penalties associated with closing the loan. Once you are ready to close your new deal, the new lender will require you to get a "payout" figure or statement from the existing lender. The statement will list all the outstanding fees, the amount of the mortgage owed, and anything else that is associated with terminating that loan. The final figure derived will be what is owing on a particular day. Remember that interest accrues daily so the new lender will most likely provide a reasonable date in the near future in order to have an exact amount. The date chosen is normally the day upon which the new lender plans to finalize your mortgage loan and have you sign your papers.
As stated, your original mortgage contract will usually list all the costs for which you are responsible right down to the fee for creating the "payout figure" and sending it out. The final figure will be calculated depending on the time that you request your refinance. Generally speaking, this involves three different scenarios.
Mortgage Contract is Set to Renew - Refinancing on the same date that your existing mortgage agreement expires is the typical way to close your current mortgage loan. The reason for this is it is the most cost effective scenario, since you do not incur any penalties and are permitted to pay the debt in full. In this case, your payout figure will be the amount owing on the mortgage plus any stated administrative fees.
Mortgage Contract is Not Set to Renew - Refinancing whenever you choose with no regard to the expiration of the existing mortgage will cost you money. Mortgage lenders always add a stipulation that you can pay out the mortgage at any time provided you agree to the penalties, normally three months of interest payments. Since the lender loses money when you pay out, in the sense, that he no longer expects that income, he usually makes sure his entitlement is written into the contract. On top of the interest payments, there will be per diem fees (depending on the time of month you pay off the loan), and then, the regular costs will be included as well in the payout statement.
Refinance Due to Foreclosure - Sadly, this is the most expensive form of refinancing. For people with little equity in their home, often this type of refinancing causes them to mortgage more than the house is worth. But it appears to be the only way to keep their homes. In this scenario, when the payout figure is requested, the existing lender is going to include all arrears, NSF charges for each of those arrears, interest on the arrears, any lawyers' fees involved in the foreclosure and attempted collection of payments, court costs, long distance phone call charges, penalties, and anything else that they can legally charge to terminate that loan.
In all cases, once the new lender has the payout figure, he will make arrangements to pay the existing lender on the closing date. He will actually write the check and either send it himself or have you deliver it so that you can obtain your final documents releasing you of the obligation. Very rarely will a new lender trust the customer to pay out the first mortgage. The lender needs to be assured that the money goes to the original lender, and that the house is free and clear of title so that he can place his lien on the house for the new mortgage.
If you are refinancing in order to obtain a cash out, then the lender will issue you a check for the remaining. The remaining balance is after everyone is paid.
Basically, when refinancing, the existing lender takes care of submitting the numbers, and the new lender takes care of closing your current mortgage loan. But please make sure that you have received copies of everything so that you are not responsible down the road for a debt that had already been paid.