With mortgage interest rates close to all-time lows, borrowers are seeking a mortgage to buy or refinance a home if they secured their financing using a program that has rates far higher than conventional loans. When you apply to refinance your mortgage most people who are doing so want to do one or more of the following:
– Consolidate high interest debts into the mortgage
– Receive cash back from new loan proceeds for your needs (invest, make a large purchase)
– Skip the upcoming months mortgage payment
– Get a refund from your escrow account
– Remove private mortgage insurance, if applicable
An approval for a mortgage refinance is dependent on three basic factors. They are your ability to repay, your credit, and your property.
Ability to Repay: Will the borrower have the income and employment criteria to pay the new mortgage loan along with any existing debt?
Credit: Is the borrowers credit history satisfactory for the loan program?
Property: How much is the property worth, what type of the property is being refinanced (SFR or Duplex, Triplex) and how it’s being used (primary, investment or second home)?
Once you pass that pre-qualification process will a mortgage payment actually be skipped?
The answer can be either yes and no.
Let’s say you your refinance closes on April 22 and your first mortgage payment will not be due until June 1. So if the payment for May is not made, it sure does appear that you’re skipping a month.
Here’s what actually happens: You will have to pay the daily interest on your new loan for the remaining days of April. If you close on April 22, this means you’ll have to pay the interest from April 23 to April 30, or eight days of mortgage interest. This will be shown as prorated interest on your settlement statement.
Your first payment to your new lender, on June 1, will include all the interest charges from May 1 through the end of the month.
So, rest assured, you are still paying on the mortgage, just the interest portion.
“Want a mortgage lender who doesn’t treat you like a number? Find a knowledgeable and friendly loan officer”.
If you’re refinancing a mortgage that has an escrow account (and getting a new lender), you’ll receive the remaining funds in the escrow account within 30-60 days after closing.
If the new loan has an escrow account, the amount to start that account will be part of the closing costs known as prepaid costs. Prepaid costs are expenses such as property taxes and homeowners insurance you’d pay for even without a mortgage.