Collecting the Correct Interest for Renewal
by Andy Zavoina and John Burnett, BOL Gurus Guru BIOS
Question: We are refinancing an existing mortgage loan for a customer. Is the accrued interest the customer must pay to refinance calculated as of the day the loan is signed or should it also include the 3-day rescission period?
Answer by Andy Zavoina: The interest on the current loan should be collected through the day it is paid off. The new loan may accrue interest on the day the loan is executed or it may begin based on the expiration of any rescission. This ability to accrue during the rescission is based on state law. It is possible that a consumer would pay interest on two loans during that period. Many banks do not do this, some do.
Answer by John Burnett: The theory behind the overlapping interest requirements is that the new loan, although not yet disbursed to the customer, has been funded and the bank cannot recommit those funds to another purpose. As Andy said, some states do not permit interest accrual to start until funds are actually disbursed to the borrower.
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