What is the Best Day to Close on a Refinance?

Refinancing your mortgage can help you secure a lower interest rate, reduce your monthly payments, shorten your loan term, or take cash out of your home equity. But to maximize the benefits of refinancing, it pays to be strategic about your closing date. Choosing when to close can potentially save you hundreds or even thousands of dollars over the life of your loan.

Why Closing Date Matters

When you refinance, you will have to pay closing costs, including accrued interest, prepaid property taxes, and homeowners insurance premiums. By carefully selecting your closing date, you can minimize some of these charges. Here are two key reasons the closing date makes a difference:

Less Accrued Interest

When you refinance, you will owe interest starting on the closing date until your first mortgage payment is due. Closing toward the end of the month shortens this period reducing the prepaid interest you’ll owe. For example if you close on March 25 instead of March 15, you’ll pay 10 fewer days of interest at closing.

Lower Prepaid Property Taxes and Insurance

If your new loan requires an escrow account, you’ll need to prepay a lump sum for upcoming property taxes and home insurance premiums. But if you time your closing around when these payments are due, you can minimize the amount required upfront. Closing in March instead of December could cut your prepaid escrow costs in half.

When’s the Best Day of the Month to Close?

To save the most on refinancing costs, aim to close as late in the month as possible. The ideal closing date is often the last business day of the month. This minimizes the prepaid interest you’ll owe and aligns closing nearest to when your property tax and insurance payments come due.

However closing too late in the month could push your first payment into the next month creating a longer gap between closing and your first payment. Some borrowers prefer to close earlier to resume making payments sooner. Work with your lender to find the optimal date based on your unique situation.

Here are some other tips for timing your closing date:

• Avoid Mondays – Closing on Monday tacks on interest for Saturday and Sunday, which can add up. Fridays are better.

• Watch the bond market – Mortgage rates tend to fluctuate with bonds. Monitor bonds leading up to closing to lock in your rate at the right time.

• Consider a float-down – This option lets you re-lock at a lower rate if rates drop during your lock period, giving you flexibility.

• Mind the calendar – Know when your property taxes and insurance renew to minimize prepaid escrow requirements

• Review your budget – Make sure you can cover closing costs on your target date. A few days can equal thousands.

Should You Lock Your Rate Early or Wait?

Deciding when to lock in your refinance rate involves a tradeoff between cost savings and risk:

Lock early

• Guarantees your rate won’t rise before closing
• Provides payment certainty for budgeting
• Eliminates market timing stress

Wait to lock

• Holds out for lower rates to save more
• Opens you up to rate increases
• Could cause delays if rates spike suddenly

Most experts recommend locking in as soon as you find a satisfactory rate. Float-down options can provide some flexibility to take advantage of drops. Waiting too long risks rates going up before you lock.

How to Time Closing to Avoid Overlapping Payments

When refinancing with a new lender, time your closing carefully to avoid making interest payments to both your old and new lender simultaneously.

Ideally, close on a Tuesday or Wednesday. This ensures your new loan funds right before your next mortgage due date. Avoid Mondays unless same day payoff is confirmed.

Ask your lender to wire loan payoff funds to ensure your old mortgage is repaid ASAP when your new loan funds.

Closing earlier in the month helps provide a buffer between loan funding dates. Just account for the extra interest you’ll owe.

If refinancing internally, timing is less crucial since there is no gap between loan repayment and new funding.

Key Factors to Consider

While closing later in the month typically saves the most money, your unique situation should factor into choosing your ideal closing date.

• When must you vacate your current home if moving?
• Will HOA fees increase for a late-month closing?
• Do home repairs need completion before move-in?
• What dates work for your work schedule, family, and moving?
• If a purchase, when is the seller’s preferred closing date?

Discuss your timeline and ideal closing date with your lender early on. They can help you pinpoint the date that maximizes savings while accommodating your needs. With smart planning, you can close out your old mortgage and open your new loan on the optimal date.

In Summary

Timing your refinance closing strategically can save you big on interest, property taxes, insurance, and overall costs. Here are some key tips:

• Closing late in the month minimizes prepaid interest
• Avoid closing mid-month or on Mondays
• Lock in your rate once you find a good deal
• Ensure smooth loan repayment when switching lenders
• Factor in your unique timeline and budget needs
• Communicate your ideal closing date to your lender early in the process

With the right closing date, you can maximize the financial benefits of refinancing and start saving sooner. A few days’ difference can equal thousands over your loan term.

Closing a mortgage at the end of the month is generally preferred because it minimizes the amount of interest you’ll pay at closing, according to Rocket Mortgage. You’ll only be charged interest for the portion of the month you own the property, which is often minimal when closing at the end of the month.