Profile picture for cuencap

Refinance Timing and "skipping" a Monthly Payment

We're planning on refinancing from an FHA loan into a Conventional loan.  Assuming a closing date at the end of September, which option are we better off with?

Option 1 - Pay September mortgage (pays for August interest).  Pay September interest and MIP via FHA payoff.  First payment due:  November 1 (pays for October interest)
Option 2 - Don't pay September mortgage, pay late fee in payoff.  Pay August and September interest and MIP via FHA payoff.  First payment due:  November 1 (pays for October interest).

I have Option 2 as calling for less money in the payoff...am I accurate in doing this?  The only risk I see in Option 2 is if the loan doesn't fund by October 1...then we'll be 30+ days late on our September payment.  Am I correct, or is there an even better way of doing this?
  • August 28 2013 - US
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Answers (6)

Profile picture for Brent Tye
I never recommend a client to not pay the current payment if we are closing at the end of the month.  You risk having a 30-day late on your credit report.  Be safe and make the September payment.
  • August 28 2013
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Profile picture for cuencap
Good point Justin, option 1 calls for more money, but that's because a portion will go towards the principal and a portion will go towards escrow. Like you pointed out, we'll get that escrow back. See, I just need to talk it out with someone! Thanks again all.
  • August 28 2013
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I don't see why you think Option 2 would call for less money in the payoff.   It will call for more money in the payoff having double the interest and double the monthly MIP. If you are thinking your upside is to "skip" 2 payments instead of one, all of money from the September payment would be relfected dollar for dollar in your updated payoff, with the exception of the portion of the September payment that goes toward your impound account, which you then get back from your servicer in refund a few weeks aafter closing.

As others have mentioned, best is to plan to pay September and then order your payoff once it posts, don't mess around with going late there isn't really any upside to it.
  • August 28 2013
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An equally important issue is to make sure your FHA loan pay off reaches lender by 1st of Oct.  There is a 3 day right of rescission so closing would need to take place by 25th of Sept to fund by wire to current lender. Penalty for going beyond first of the month to pay off an FHA loan is 30 days of additional interest. As far as Options, you are paying the same amount of interest, but i would avoid Option 2 as being too risky.
  • August 28 2013
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If you fund your loan within the first 15 days of the month, you can use option 2.
Otherwise, most Lenders will not fund a loan in option 2. The loan must be current when the updated payoff comes in from the old lender.
 
All The Best!
  • August 28 2013
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You are correct in option 2 and how it works.  You are gambling a bit.  If anything happens to delay funding before the end of September you will go 30 days late and that will be a major problem.  I have used this method for clients in the past but I always make sure to allow extra time for rescission and funding to make sure they are protected.
  • August 28 2013
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