Closing Costs When Buying or Refinancing a Home

Buying A Home Or Refinancing A Mortgage

Whether its your first mortgage. Whether you have no back ground of mortgage. Assuming a mortgage borrower is a novice. Let me offer the simplest explanation of understanding cost so that a borrower is aware whether there is any Hidden cost and he is being bluffed or not. This article will make you better than your loan officer.

If your existing mortgage balance is  $ 100,000 and your new mortgage on your refinanced new mortgage is $ 105,000. $ 5000 is being added on to your current principal balance.

This has two components. One is a closing cost that is being rolled into your loan amount and the other is pay off.

Purchase and a Refinanced Mortgage

Let’s understand what a payoff is. When you renting a space in past and you to your landlord to make your rental payment for let’s say the month of August. You are essentially paying your August rent in advance to your landlord to allow you to stay for August.

In mortgage it's just the reverse. You stay in a mortgaged house for the entire month of August and when you make the payment of September the first to your bank. You are paying the mortgage for the month of August. What that means is that rent is always paid in advance where as a mortgage is paid in arrears.

Now, we can understand the concept of pay off. Let’s say you initiate your mortgage in January. By the time your mortgage is ready for close. It’s February 10^th. You have made your mortgage payment for the month of February on the 1^st of February. Now you understand that when you did make the payment on February 1^st. You essentially made the house payment for the month of January as the mortgage is paid in arrears, not in advance. So 10 days of interest is due to your current lender or bank at the old interest rate. 20 days of interest is due to the new lender at the new interest rate to cover the entire month. This interest portion of two banks for 30 days is called pay off. This is added on to your new principal balance unless the borrower says, I don’t want my mortgage to go up and I shall bring the money for pay off at the close. 

So in our example of the closing cost of $ 5000. We can assume that $ 1000 is the payoff. Pay Off is not a closing cost. Pay off is your interest portion that a borrower anyways had to pay to the bank. So the real cost is just $ 4000.

What makes it even clearer documentation wise is your loan document called GOOD FAITH ESTIMATE.

GFE is a legal document and over time many changes in the laws have been made to protect the borrower. As of 2017. Once the cost is put on GFE. Bank or lender can only reduce the cost and cannot increase it. It gives a complete break up of all the cost that is being included in the mortgage.

For more information visit www.affordable-payment.com or call 323-705-3191 if you are a California Mortgage borrower or If Texas Mortgage Borrower call 713-463-5181 EXT 154