Refinance - Interest Due on Loan Being Refinanced

Please Help! I retired at year-end 2015 thinking I would never have to worry about TRID again! Decided to come back to work and don't remember what my prior research found on how to handle this scenario.

Loan on our books being refinanced with new money being advanced. We require the accrued interest on existing loan to be paid at time of refinance. Should we disclose the interest being paid on one line in the payoffs and payments section and the principal of the loan on a separate line? Will Cash to Close show the net amount to borrower? (New money - interest being paid)

Or is it best to have borrower bring check to closing for interest and not list on Closing Disclosure at all?

Appreciate any help in reminding me how this scenario is best accomplished.

A loan payoff is a loan payoff - one amount.

Rdy to Retire, Randy is right it is one amount. The interest due will net out on the CD.

We require a check for the interest amount and use the 'disbursement form' in our system to show the breakout.

IOW, if they want $5000 cash, but we require $500 in interest, the bottom line of the CD will reflect $4500.00. However, the disbursement will show $500 from them with $5000 to them.

Confusing much? I absolutely DETEST this insanity.

Thank you! Very Interesting! Didn't think about being able to show both "from" and "to" in the Calculation Cash to Close table. Would you happen to use Laser Pro?

Or did I misunderstand? Will the Cash to Close table just show the "net" and then on your Disbursement Request it will show to and from?

It really depends on what you are trying to accomplish.

If your pay-off is $50,000 + $200 of accrued interest then your loan payoff is listed as $50,200 in the payments and payoffs table.

If there are $1,000 in closing costs and you are loaning them $51,000, then you are going to have a cash to close from the borrower of $200 - which is your accrued interest on your original loan.

That is, if for some reason you require the interest to be paid in cash and not just rolled into the new loan.

Thanks Randy! I think I got this part - we have been breaking out the interest and disclosing on its own line, so that is an easy fix to just disclose as one figure for the payoff.

The part that has me a little confused is when Joker said on the disbursement to show $500 from and $5,000 to the borrower. Trying to make it clear that we didn't capitalize interest, which is kind of what it looks like when it is netted out on the Closing Disclosure (when the borrower is receiving cash back). But couldn't figure out any other way to do it, so am interested in a little more clarification on showing the breakout (to and from) on the disbursement.

Thank you so much! I really appreciate your responding!

Well, the CD disclosure requirements and how you account for this all on the back-end are unfortunately not that compatible at times. You cannot show to and from from the consumer on a CD at the same time. This is the consumer's disclosure regarding closing costs. How you account for the fact that the consumer paid the accrued interest and it was not financed is more of the lender's problem that does not involve the required consumer disclosures.

The net.

My separate disbursement shows the actual passing of funds.

What I said above is exactly how it's represented.

Net on the CD, but broken out in 'reality' on the disbursement doc.

IOW, if they want $5000 cash, but we require $500 in interest [interest collected in cash], the bottom line of the CD will reflect $4500.00. However, the disbursement will show $500 from them with $5000 to them.

I don't use LaserPro, I use C1 Mortgage but I believe they have a similar document.

Sorry, you really lost me on this. How is this not refinancing the accrued interest. You give me $50 and I give you $25 back. The bottom line is you are still financed the $25 that I gave you back.

Personally, I think this whole issue has been blown out of proportion. The regulators or your accountants could care less if you are refinancing the normal accrued interest on a loan payoff as long as the current loan is performing and we not talking about a longer term loan that was interest only and it was all due at maturity. These hoops you are jumping through makes no sense to me.

Randy, don't get me started. This is an absolutely ludicrous way to handle a CASH OUT refinance and I blame regulators broad definition of 'capitalized interest', but I digress....but the net is $4500.00, because if they hand you the $500.00, you have to then cut the check to them for $5000 for them to net the actual amount of $4500.00.

(If they need 5000 cash in hand walking out the door, we would add $5500.00 to the loan as the cash out portion )

Having said all that in a rant...it looks perfectly SANE when it's a no cash out refi and you are collecting the accrued interest. Although I still protest it and contend that it has zero to do with the true definition of capitalization.

Management that has been busted in the past for Capitalizing tend to err WAY on the side of caution and want to keep it consistent so someone doesn't royally mess up

I have never had any regulator, State, NCUA, OCC or the FDIC question rolling the last month of accrued interest into the new loan.

Capitalizing interest is a no-no for single pay loans but for the everyday consumer or mortgage monthly pay loan I have to agree with Randy that making the borrower pay 1-31 days of accrued interest in order to refinance the loan is jumping through unnecessary hoops.

I know, I know...you are preaching to the choir