When you close on a refinance loan the loan doesn’t “fund” until three days after you sign. This period is know as the recission period. During these three days you have the right to rescind the transaction. In other words you can choose not to go through with the refinance and the transaction is canceled. Even though you signed the legal documents obligating you to the loan you are now released from that obligation as if you never signed them. You are also entitled to be refunded any money you paid for the refinance if you rescind during the recission period and the “old” loan is not paid off. After the right of recission period is up, and if you don’t rescind the refinance loan, the title company or attorney completes the transaction by disbursing the funds, which includes sending the amount of the payoff to your current lender.
When these funds can be disbursed may also depend on the state your property is in. In what are called “dry funding” states the transaction is not “official” until the legal documments are recorded. For this reason the funds are held in escrow until the loan documents are recorded. In wet funding states the loan is “official” as soon as the borrower signs, subject of course to the right of recission. So even before the ink dries the the transaction is “official,” but must wait for the recission period to be up before disbursing.
So as you can see you asked a simple question, but the answer is not so simple. The old mortgage is stopped when it is paid off. The new mortgage begins when you receive use of the funds. These are not necessarily the same day and can even be separated by several days.
With any refinance on your primary residence, Federal law allows for a 3 day Right of Rescission, so your old mortgage loan should be paid off within 4-5 business days following closing. For example, if you close on Monday, your 3 day ROR will end at midnight on Thursday night and your new loan will go into effect on Friday. Your old loan should be paid off that Friday via wire or the following Monday via overnight courier. Either way, ask for proof of the loan payoff.