The Question:
“We refinanced and the escrow company stated they recorded 11/21, however, the next few days were the Thanksgiving holiday, so the wire did not get sent to the bank for payoff until 11/26. We paid double interest from 11/21 to 11/26 and escrow said it is theirs to keep. Is that correct?

Also, the bank has not paid us back for a day or two worth of interest. Is there regulations against this?”

Thank you!

Note: Read Our Top Five Mortgage Complaints!

My Answer:


First, the recording date is meaningless on all home refinancing and even more so in your case. There is a Federally mandated 3-day right of rescissionn which is why refis close one day and fund (usually) 3 days later. The signing date, even the final closing date is meaningless in your case. It is the “funding” date that is the important one. This is the day the escrow company wires the funds to pay off the old loan (taking into account any holidays it can be longer than the normal 3rescissionn days) which is why they always add a buffer to the payoff.

Your new loan escrow amount gets adjusted downward for any days of interest the rightfully belong to the old lender. In other words, the old loan dies on the same day as the new loan begins…even if that is 5 days as it is in your case instead of the normal 3. They will still add a buffer to the 5 days to make sure the old lender gets more than enough funds to execute a clean pay off.

They do this knowing that any overage will be paid back to you within 30 days of the closing. The old lender is only owed interest for the days that the loan is outstanding…so if the actual funding date was not until the 11/26…they are owed interest to that date and the new loan’s interest is starts on that date as well…hence no double interest.

Lastly, the only way the previous lender can keep interest from the pay off date to the end of the month is when the loan in question is an FHA Loan. Double interest is only possible when paying off an FHA loan. However, even then the escrow company pads the payoff with a few days of interest on the old loan just to be sure the pay off goes smoothly.

So you will be getting a small check back from the old lender for that few days of buffer the escrow company added…unless somehow their buffer exactly matched the actual pay off amount…which is highly unlikely.

Thanks for the question…


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