Taxes, Insurance and Interest
When you refinance a home, there may be some necessary charges to cover one or more of these pre-paid costs.
Your current home loan is with Countrywide and taxes and insurance are included in your current monthly payment
In this case, we will deduct the amount in your current escrow account from your pay-off. At closing, the pre-paid costs for which you will be responsible will be pre-paid/accrued interest and, depending on the month you close, we will collect enough tax and insurance amounts to pay these when they come due.* See pre-paid/accrued interest below.
*If your escrow/impound account is not on schedule, you may be asked to bring additional fees to closing or to increase your monthly payments to make up the shortfall.
Your current home loan is with Countrywide and your current monthly payment does not include both taxes and interest
If you pay taxes and insurance separately, you will have to show proof of payment for insurance at closing. You will also be responsible for pre-paid/accrued interest. See pre-paid/accrued interest below. If your property taxes are due, you may be required to pay the taxes prior to closing.
Your current home loan is with another lender and you pay both taxes and insurance as part of your monthly payment
Countrywide will set up an escrow account for your taxes and insurance. Depending on the time of year, the due date of taxes and the renewal date of your insurance, Countrywide may require several months or more of your yearly property taxes and insurance. At closing, you'll be required to pay these amounts to fund the escrow account and be responsible for pre-paid interest. Accrued interest will be reflected in your loan payoff from your current lender. Any refund you're due from your former escrow account you'll normally receive in 6 to 8 weeks. See pre-paid/accrued interest below.
Your current home loan is with another lender and your current monthly payment does not include both taxes and insurance.
If you're going to pay taxes and insurance separately, you will have to show proof of payment for insurance at closing. You will also be responsible for pre-paid interest. Accrued interest will be reflected in your loan payoff. See pre-paid/accrued interest below.
Pre-paid/Accrued Interest
When you refinance, you pay both the accrued interest on your existing loan and the pre-paid interest on your new loan for the current month. This is because the last loan payment you made was for the previous month, not the current month (loan payments are always for the month just finished, not the month ahead.)
Here's an example. Say you close on May 21st. You will need to pay the accrued interest from May 1st-21st on your old loan, plus pre-pay the interest from May 22nd-31st on your new loan.
It is a common misconception on a refinance loan that, like a purchase loan, you get to "skip a payment." This is not true on a refinance loan because you have the accrued interest on the old loan and pre-paid interest on the new loan (purchase loans only have pre-paid interest). Regardless of the time of the month you close your refinance loan, there will be a total of 30/31 days interest (typically, an amount slightly less than your current monthly payment).
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