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I'm going to refinance the mortgage and got closing disclosure. It says my current lender will get $257K on closing. However, my balance is $254K. I called the agent to clarify why expected pay off is higher than real and she said "Do not worry, on the closing date it will be corrected to exact value".

However, I'm still in doubts

  1. why they cannot put correct value (as a matter of the fact $257K is 4 months old balance!) or as close to current as possible, i.e. no more than one month old.

  2. closing date is on Saturday, I do not think they can call current lender on Saturday to get the exact value

  3. (most important question) what happens if they send $257K instead of $254K. Who is responsible for taking $3K back from the previous lender? Me? New lender?

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    "The closing date is on Saturday" - this Saturday (tomorrow), or some Saturday in the future? Normally this paperwork would get updated closer to closing with the corrected final payoff amount (outstanding principal amount + accrued interest between last payment and closing).
    – yoozer8
    Commented Aug 21, 2020 at 13:24
  • @yoozer8 As I understand, there must be no problem to calculate exact pay off value for any future date if the interest rate is fixed. And it seems they did it, see my comment to another answer. Agent could explain it to me but she did not. Commented Aug 22, 2020 at 2:48

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Normally, the previous lender will send that overpayment back to you, they are used to that; you don't lose it. There is little to worry about that.

However, what you should consider is that of course that unnecessary cash gets financed too, so although you will get it in your hands, you'll pay interest on it for the next N years (unless you pay it right away off on the mortgage), and many fees - including the lender's sales bonus - is proportional to the total, so of course they love to go a little bit higher.
Most people are also happy about 'a little extra cash out', not realizing that they will pay 15 or 30 years interest on it.

Don't worry if the amount is 50 or 100 bucks off - but for three months payments, it becomes something to consider. Remember, once you have the money, you should right away pay it as 'extra principal' back in your mortgage, and save yourself months of rate paying at the end.

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    For the second paragraph, one could most likely just make an extra payment to the new mortgage to get things back on track.
    – D Stanley
    Commented Aug 21, 2020 at 13:15
  • Thank for you answer. I finally read all documents sent to me (100 pages!) and got some clues about $257K. My payoff date is 8/31/20 (even if the closing is earlier). $257K is not some old balance. It is balance as at 8/1/20 + interest for August + PMI for August + 1 month mortgage payment as per new mortgage contract. My first payment is on 10/1/20 so it is clear why they collect a 1-month payment. The only thing I do not understand, why they send it to the old lender. Starting from 9/1/20 old lender is out. Commented Aug 22, 2020 at 2:43

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