By Karen E. Klein
Bad calendar coordination can result in double interest for a day. Your banker can help, but sometimes you'll just be stuck.
When loans are refinanced, it seems standard practice is to fund the new loan and then pay off the existing loan the next business day. So for one day (longer if God forbid you fund the new loan on a Friday), one is charged interest on the existing loan and the new loan. Is there any way around this day of double interest? Also, why does it take a month to generate refund checks on loan payoffs?
—S.R.R., Pacific Palisades, Calif.
Refinancing a loan is a complicated banking process that can involve dozens of people and multiple departments within a bank. If one loan is being refinanced to pay off another loan, perhaps at a different bank, the transaction becomes even more complex, says Hugh E. Conners, senior vice-president in community business banking at Comerica Bank's Western market unit.
"There can be multiple lenders, title companies, attorneys, and others that the loan officer or underwriter needs to coordinate" in a refinance, Conners says. "Given the number of moving parts involved, there might be a one-day lag in having the refinance funds move from the new loan to paying off the old loan. Some lenders will account for this day of interest lag and some will not." (more)
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