Is Your Mortgage Company Stealing Your Money At Your Refinance Closing?
January 13th, 2012 | 
Author: This mortgage question I get from time to time.
I got a call from a homeowner who was about to close on her mortgage refinance transaction.
She was looking at her HUD-1 Settlement statement and noticed that the mortgage company was collecting prepaid interest for 11 days.
At $37.52 per day, this amounted to $412.72.
She also noticed from the old mortgage payoff date that her old mortgage company was collecting a balance from a date about 12 days from when her new mortgage funded.
I think her new mortgage funds on January 19 but her mortgage company was collecting money through Feb 4.
She asked me,”Why am I paying prepaid mortgage interest from January 19th through January 30th and also paying my old mortgage company per diem mortgage interest through February 4th when they get paid off on January 19?”
Great mortgage question.
She believed the mortgage company was stealing her money.
Here’s the answer.
She paid prepaid interest from the time her new mortgage funded, which is January 19th through January 30th.
She won’t have a mortgage payment in February.
Her first mortgage payment is due March 1 as all mortgage payments are applied in arrears.
I explained that when the title company ordered the mortgage payoff for her existing mortgage, they don’t know exactly when the new mortgage will fund.
So the title company will request a mortgage payoff for a few weeks beyond what the target mortgage fund date is estimated to be.
They do this in the event there is a clich in the mortgage underwriting process and the mortgage closing is delayed and closes after the payoff date. If this were to happen, the title company would have to order a new mortgage payoff, which would delay the mortgage closing even more.
What’s happening is that the old mortgage company is collecting 15 days of extra mortgage pre diem interest from her.
I think this amounted to around $550.
I explained that that money is hers and that the old mortgage company will refund any overage to her.
As the old mortgage company was fully paid on January 19, they’re not entitled to any mortgage payments or mortgage interest beyond that date.
Since they collected beyond that date, the difference between the fund date and the mortgage payoff date would be refunded to the borrower.
In conclusion, your mortgage company isn’t stealing from you if they collect more than what is owed to them.
If they do collect more than what is owed (which is common for mortgage refinance transactions), they will refund you the difference.
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