Refinance guide Loan Estimate vs Closing Disclosure on a refinance

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Loan Estimate vs Closing Disclosure on a Refinance: What Homeowners Need to Know

When you refinance a mortgage, two federal forms are central to understanding the loan’s costs and terms: the Loan Estimate (LE) and the Closing Disclosure (CD). Both are required by the Consumer Financial Protection Bureau (CFPB) under the TILA-RESPA Integrated Disclosure (TRID) rules and serve different purposes at different points in the refinance process. Knowing how to read and compare them can save money and prevent surprises at the closing table.

What they are and when it makes sense

What is a Loan Estimate?

The Loan Estimate is a standardized, three-page document lenders must provide within three business days after you submit a loan application. It outlines the estimated interest rate, monthly payments, loan terms, and itemized closing costs. The LE is designed to help you shop and compare refinance offers from different lenders.

What is a Closing Disclosure?

The Closing Disclosure is the final, five-page document that shows the actual loan terms and closing costs. Lenders must provide the CD at least three business days before consummation (closing). It replaces the LE’s estimates with final numbers and shows your “cash to close,” loan balance, and payment schedule.

When it makes sense

Refinancing makes sense when you can lower your interest rate meaningfully, shorten or otherwise improve your loan term, convert between adjustable and fixed rates for greater stability, or tap equity for debt consolidation or home improvements. The LE helps you decide whether it’s worth continuing the refinance, and the CD confirms whether the final deal matches what you expected.

Benefits and drawbacks

Benefits

  • Transparency: Both forms standardize key information so you can compare offers and track changes during the process.
  • Consumer protections: TRID rules require timely delivery and provide tolerance limits that restrict how much certain fees can increase between LE and CD.
  • Decision support: The LE helps you shop; the CD prevents unexpected costs at closing by giving you time to review final numbers.

Drawbacks

  • Estimates can change: Some fees can and do change between the LE and CD within permitted tolerances, which can be confusing.
  • Timing constraints: If you receive a revised CD, the three-day waiting period can delay closing.
  • Complexity: The forms are standardized but still contain technical terms that can be hard to interpret without guidance.

Costs and fees shown on LE and CD

Both forms break down expenses into categories. Typical items include:

  • Loan costs: lender fees, origination charges, points, and discount points
  • Services you can shop for: appraisal, pest inspection, title services (may be listed separately)
  • Services you cannot shop for: credit report, underwriting fees (often set by lender)
  • Prepaid items: prepaid interest, property taxes, homeowner’s insurance, mortgage insurance
  • Escrow/impound account amounts: initial deposits for taxes/insurance if required
  • Other costs: recording fees, transfer taxes, title insurance

TRID tolerance categories affect how much certain charges may change from LE to CD:

  • Zero tolerance: No increase allowed (e.g., lender fees, points).
  • 10% cumulative tolerance: Total of certain third-party fees cannot increase by more than 10%.
  • No tolerance: Fees that can change (e.g., services you shop for) if you select your own provider.

Step-by-step refinance process (focus on LE and CD)

  • 1. Application: You submit a formal application with required data (income, assets, property details).
  • 2. Loan Estimate: Lender sends the LE within three business days—review and compare multiple LEs if shopping.
  • 3. Shop & decide: Ask lenders questions, request rate-locks, and decide whether to proceed or seek better terms.
  • 4. Loan processing & underwriting: Lender orders appraisal, verifies documents, and moves toward final approval.
  • 5. Rate lock and final underwriting: When the lender locks the rate, costs become more certain; underwriting issues must be cleared.
  • 6. Closing Disclosure: Lender provides the CD at least three business days before closing. Review it carefully and compare to the LE.
  • 7. Resolve discrepancies: If the CD contains unexpected changes, raise concerns immediately—lenders must explain and, if necessary, re-disclose and restart the three-day clock.
  • 8. Closing/consummation: After the waiting period and all items addressed, you sign final documents and fund the loan.

Common pitfalls to avoid

  • Not comparing APR and total costs: Don’t only focus on the interest rate—consider points, fees, and cash-to-close.
  • Assuming the LE is final: Understand tolerance categories and expect possible changes to some fees.
  • Missing the three-day review: Never rush to sign at closing without reviewing the CD for accuracy—if you receive it late, ask to reschedule.
  • Letting the rate lock expire: Keep track of your lock window; an expired lock can increase costs significantly.
  • Not watching for hidden charges: Check line-by-line for duplicate fees or unexpected seller credits and reimbursements.
  • Failing to ask about escrow setup: Ensure you know whether taxes and insurance will be escrowed and how that affects monthly payment.

Short FAQ

Q: What’s the main difference between the Loan Estimate and Closing Disclosure?

A: The LE provides estimated costs and terms early in the process to help you shop. The CD provides final, binding figures and must be delivered at least three business days before closing.

Q: Why did my Closing Disclosure show higher costs than the Loan Estimate?

A: Changes can result from appraisal updates, borrower-requested changes, differences in chosen service providers, or tolerance-allowed adjustments. Lenders must explain material changes and may need to reissue the CD if required.

Q: Can I negotiate fees after I receive the Closing Disclosure?

A: Yes. If you find fees that differ from the LE or seem excessive, you can ask the lender for an explanation, request corrected charges, or shop for alternatives if time allows. Major changes can require a re-disclosure and delay closing.

Q: What should I do if I receive the Closing Disclosure less than three days before closing?

A: You have the right to at least three business days to review. If you didn’t receive it on time, request a reschedule; the lender must comply with the waiting period, or the closing may violate federal rules.

Understanding the Loan Estimate and Closing Disclosure gives you leverage and clarity during a refinance. Read both documents carefully, compare them line-by-line, ask questions early, and don’t hesitate to delay closing if numbers don’t match what you agreed to.

META: Loan Estimate vs Closing Disclosure on a refinance — LE vs CD explanation, timing, costs, process, pitfalls, FAQ.

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