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How Does Escrow Work When Refinancing?

How Does Escrow Work When Refinancing?

Understanding the escrow process is important when refinancing your home. Since real-estate transactions include long, multifaceted steps, escrow agents are in place to help refinancers and lenders track and disburse money according to the agreements made.

However, many are unsure of the specifics of the escrow process when refinancing a home. In this article, we explain what an escrow agent does during a home refinance and what it means for your money.

When do I use Escrow for a Home Refinance?

In a refinance, a homeowner replaces his or her current mortgage with a new mortgage. The new mortgage often comes with more favorable terms to the borrower than those of the current mortgage.

When the new mortgage has been finalized with a new lender, that lender will then make use of the escrow process to disburse money to the old lender to cover the old mortgage.

However, many want to know what the exact steps are in an escrow process during refinancing. When do you stop paying interest on your old loan and when do you start paying interest on your new loan in a home refinancing process?

Refinancing Escrow Process, Explained:

When closing a home refinance, there are steps an escrow agent needs to take to complete the refinancing process. After you have signed the final documents on your refinance and received all the disclosures and notices, you will have a 3 day rescission period to reconsider the home refinance and cancel the new mortgage. If you continue with the refinance, here are the steps to the escrow process:

Step 1: Your escrow agent will request funding from your new lender.

Step 2: The new lender will wire the money to the escrow account.

*You will start paying interest on your new loan the day your new lender wires the money to your escrow account. You will also still be paying interest on your old loan until the old loan is paid off.

Step 3: The escrow agent will then work with the title company to pay the lender on your old mortgage by wire transfer. Once money is received, you will stop paying interest on the old loan.

* If your old lender does not accept wire transfers, the title agent will overnight a check. You will have to pay interest on old loan until old lender receives check.

Step 4:  The escrow agent will record the new mortgage with the county recorder’s office and your new mortgage is now official!

How Long does Refinancing Closing Process Take?

Including the 3-day rescission period above, the entire escrow process when refinancing a home should normally take a little over a week to finalize. This process can take even longer if the escrow agent does not have the right tools or lacks the organization required to smoothly close on a refinancing escrow process.

So make sure to choose an escrow service that is fast, transparent, and reliable.

Be Careful with Your Escrow Home Refinance

A refinance can be a delicate financial instrument and must be entered into with care and thoughtful analysis. As you can see from the steps outlined below, it is important to get a fast and easy escrow so that you pay less interest on your old mortgage during the refinancing process – a slow escrow process can cost  hundreds or even thousands of dollars.

With years of successful experience handling refinance transactions, New Venture Escrow can guide you every step of the way to maximize your savings with your new mortgage. Contact our escrow experts and we will guide you through the escrow process in your next home refinance. In case you just want to learn more, check out our articles on the escrow process for a home resale or how escrow works when selling a new home available on our website.


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