Day for closing loan

The truth is that you pay on your old loan right up until the day you close, and you pay on your new loan starting from the day you get it. There is never a day you dont pay interest. SO … if your new loan has a lower rate, or you need that cash, you want to close as soon as possible to minimize the days you pay on your old loan.

Many people like to time their loan to FUND on the first of the month – this means that pay no “prepaid” interest on the new loan.

Take this example:

Lets say you have a loan that you are paying off (refinancing). You make your payment last payment on that loan on November 1 (that payment covers principal and interest from October 1 – October 31). Then, you fund your NEW loan on December 1. Your “payoff” to your old lender will include all the interest from November 1-November 30 (the interest that you WOULD have paid in your Dec 1 payment). Your NEW loan will not include ANY prepaid interest. You will not make a Dec 1 payment separately to anyone. Then, your new loan will be due for the first time on January 1.

There is exactly one month before the first payment is due. The first payment covers exactly that one month of interest.

That neatly avoids “prepaying” any days of interest. But, it doesnt avoid paying … it just makes it neat and clean.

Instead, let’s assume you have the same loan – BUT – instead of waiting until Dec 1 to close, you fund on November 15.

It has been 15 days since you made your last payment, so 15 days of interest will be included in your payoff statement. Your payoff statement will be less than the previous example, because it does not include the interest from Nov 16-30.

At the closing, you will pay for Nov 16-30 “prepaid interest” to the NEW lender. You still pay for all of November, you just split it up.

Then, your first payment is still due on JANUARY 1 (not December) – because you have already paid for all of the days of interest that would have been in your December payment.

You might get a little more at closing in the first scenario … but then your first payment is due sooner. So in the end, it doesnt really matter.

NOTE: The one exception to the above is FHA loans. If you are paying OFF an FHA loan (it doesnt matter if you are getting a new FHA loan or not), you will be charged the full month of interest no matter what day you close. So, in this case, if you closed mid-month, you would be double paying to the new lender and the old one. In this case, it makes sense to fund your loan as close to the first day of the month as possible WITHOUT going into the next month.

NOW … your question may have also been about the difference between your signing/closing date and your funding date. In the US on your primary residence (only), there is a mandatory 3 business day waiting period from the time you sign the documentation until your loan can fund. This is called your “right of rescission” – basically, your right to review the loan, decide whether you have been treated fairly, and cancel if you dont want the loan. This is meant to protect people from feeling pressured into a loan (and to give them time to review the documents in detail), but it makes for more complicated calculating of closing and funding dates.

Saturdays DO count. Holidays and Sundays DO NOT count. The day you sign and the day you fund do not count -there must be 3 full business days in the middle.

So, looking at a 2011 calendar for October … .

If I sign on Thursday, the 27th … The first day is Friday the 28th … The second day is Saturday the 29th … The third day is Monday the 31st … And I fund on November 1.

Looking at November …

If your lender/attorney/escrow is working on November 25, and you sign. The first day is Saturday the 26th … The second day is Monday the 28th … The third day is Tuesday the 29th … And you fund on Weds the 30th.

(there is really no way to fund on the first unless your lender is working on Saturday the 26th).

If the lender is NOT working on Friday the 25th, you’d have to sign on Weds. the 23rd …

Then Thursday is Thanksgiving Friday is a holiday First day is Saturday the 26th … and you fund on Weds. Nov. 30th.

Investment property and commercial property fund on the same day they sign (or the next day) according to your state practices.