Michael Creed's Blog

There are a few items that are very common in the mortgage industry as required by law, most of which are not fully understood by those that matter the most – the borrowers!  Here are some of those items; please contact me if you have any questions about any aspect of your home loan.

Quick Links: Funding | Odd Days Interest | APR

Three Day Right of Rescission

Most homeowners have heard about the three-day rescission, but do not understand how it works. The three-day rescission allows you time to review all of your documents after closing on a refinance of your primary residence to make sure the loan you got is the mortgage you were promised.

You have until midnight on the third day to cancel your loan for any reason. This serves to protect homeowners from the pressure sales and bait and switch tactics commonly used by mortgage lenders.

Your mortgage broker is supposed to inform you of your rescission rights; however, most brokers conveniently forget to disclose this to you when refinancing your mortgage. If you decide to take advantage of rescission you will need to fax the written cancellations to your mortgage broker (if any), lender, and title company involved with your loan. The three-day time-frame you have for a rescission includes any day of the week, except Sundays and Federal holidays; yes, Saturdays count unless they are a Federal holiday.

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Funding

The loan “funds” the day that the money is disbursed from the lender to the title company.  With a purchase of any property and the refinance of any property other than your primary residence, your loan will fund the same day that you sign the closing documents.  For a refinance of your primary residence, your loan will fund the next business day (Monday -Friday) after your three-day rescission period has expired.

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Odd Days Interest

Also known as “per diem” interest.  This is money that is collected (sometimes refunded when rescission periods are involved) to a borrower at closing to synchronize their closing day with the loan payment due dates.  This is required because interest accrues daily, if it wasn’t done, your first payment would be different than your normal payment amount. 

Example: If you closed on the purchase of your new home on 8/15, the lender would collect 17 days of interest at closing (31 days in the month; interest is paid for every day that you have the loan; the only days where interest is not collected is the first 14 days of the month; 31-14=17).  This closing date would, in turn, make your first payment (due 10/1) equal to all other payments (on a fixed note) because it was equalized.  Why would the first payment be due 10/1?  Great question!  Mortgage interest accrues in arrears; this means that when you make your first payment on 10/1, you are paying the uncollected interest for the month of September.

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APR

I have prepared a special PDF (Adobe File) that you can open and print that specifically addresses all the questions of this useful, yet complicated Federal Disclosure. Click here for the file.

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