Closing is the final step in the mortgage refinance process. After you have received final underwriting approval from your lender and satisfied all of the conditions to close, your refinance is ready to fund. Refinance closing involves multiple parties and a lot of documents so you work with a settlement agent, also knows as a closing agent or escrow agent, to make sure the process runs smoothly and that your loan closes according to schedule. Despite the high number of people and significant amount of paperwork involved, the refinance closing process usually takes less than a week.
The settlement agent manages all of the logistics of the refinance recording, funding and closing processes including the preparation and distribution of loan documents, recording your loan with the appropriate county office and administering the transfer of funds and legal documents to all involved parties. After you have reviewed all of the loan documents related to the refinancing process, the final step is for those documents to be recorded and made official and for your refinancing to fund.
Be sure to review the Closing Disclosure, one of the key loan documents, carefully prior to finalizing your mortgage. The lender must provide a Closing Disclosure to the borrower that outlines the final, actual terms of the refinance at least three business days before the close of the mortgage. You can use the Closing Disclosure to make sure that your final loan terms are consistent with the terms that the lender committed to providing you at the start of the refinance process and that you are not being overcharged. If you determine that your final mortgage rate or closing costs, as outlined in the Closing Disclosure, have increased significantly without explanation you should cancel, or rescind, your loan.
For a refinance, mortgage regulations provide a three day right of rescission period after the borrower signs loan documents and receives the Closing Disclosure during which the borrower can rescind, or cancel, the loan. The right of rescission period is designed to protect borrowers against lender fraud or deceit. An example of lender fraud is when lenders quote one set of mortgage terms at the beginning of the refinance process to win your business and then attempt to increase your mortgage rate or closing costs prior to closing. Please note that the right of rescission period only applies to refinances and not purchase mortgages.
For a refinance, you can cancel your mortgage up to three business days after signing loan documents and then you are free to work with a different lender; however, we recommend that you do not sign your loan documents if you identify any significant issues or discrepancies
If you are comfortable moving forward with your refinancing you sign the closing documents and then let the three day right of rescission period expire. On the day your mortgage closes, the lender wires funds to the settlement agent. The settlement agent then sends the deed of trust (or mortgage, if you are in the Southern U.S.) to the local county recorder office and the refinance is a matter of public record.
After the transaction has been recorded, the settlement agent then distributes all of the funds in the escrow or trust account, including your mortgage proceeds, to the appropriate parties. Your bank is repaid its outstanding loan balance, third party service providers such as the lender, appraiser, title company and settlement agent receive their fees and commissions, city governments receive any property taxes and fees due, and you receives whatever proceeds remains after everyone else is paid if you are doing a cash out refinance. In short, everyone is paid the money they are due and the you officially have a new mortgage.
The chart outlines the key steps to recording, funding and closing your refinancing.
Now that your refinancing has closed it is time to celebrate but before you pop the champagne there are a couple of last minute items to remember. Be sure to review the first payment letter provided by the lender, which notes your monthly mortgage payment amount, when the payment is due and payment method. The last thing you want to do is pay a late fee because your were late with your first mortgage payment. Review our First Payment Letter video tutorial below to learn more about this important document.
First Payment Letter Overview Video
The table below compares refinance rates and closing costs for leading lenders in your area. We recommend that you contact multiple lenders to find the loan and program that best meet your needs. Shopping lenders and comparing loan proposals is the best way to save money on your refinance.
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