Question: I am in the process of refinancing my home. I initially locked in verbally at 6.875 percent with no points. I then received a Good Faith Estimate of Closing Costs and a Lock-In Agreement. Both of these forms indicated that there were no points associated with the loan. One week later my loan officer called to tell me that he made a mistake and that I would have to pay ¼ point. Since this only added up to $320, I felt it wasn't worth fighting.

Settlement was scheduled for March 7th. When I saw my settlement papers I noticed that I was being charged interest for the entire month of March by my old lender. It seems that on FHA loans, the entire month's interest is always charged, regardless of when the loan is actually paid off. This means that I am charged interest on both the new loan and the old loan from March 7th to March 31st. I asked my lender to postpone my settlement date to the end of March but they said they would charge me $150 to re-draw the papers. I feel as if I'm getting royally ripped off. Any advice?

Answer: Well I'll say this - your new lender sure has given you shoddy service. My advice is to fight this one. Let me break down your situation step by step so I can tell you why.

First, you have a written lock-in agreement that promises an interest rate of 6.875 percent with zero points. Your lender should honor that. If the loan officer makes a mistake, which can happen, he eats the loss. You shouldn't have to pay for his mistake. Besides, it's only a quarter point. That's not enough to put this fellow in the poorhouse.

Second, any good loan officer knows that when an FHA loan is being refinanced, it is important to settle as close to the end of the month as possible. Let me explain:

With conventional loans, interest is charged only up to the day that the loan is outstanding. This means that if a conventional loan is paid in full on March 7th, the lender will not charge any interest beyond that day. For loans guaranteed by FHA (Federal Housing Administration), interest is charged all the way through the end of the month, regardless of the actual payoff date. So if you refinance on March 7th, your new lender will begin charging interest on the 7th and your old lender will collect interest through the end of March. That's over three weeks of double interest.

As an owner of a small mortgage shop, I am amazed that there are loan officers out there who either 1) don't know about FHA loan payoffs, or 2) don't care.

During huge refinance waves, when mortgage companies are processing five times the normal amount of loans, I can understand that some FHA loans may have to settle a bit earlier than the last day of the month. It's physically impossible to settle a month's worth of loans in one day. But in your case, the loan officer should have known to time your settlement a bit closer to the end of March. For that matter, he never should have charged you the measly ¼ point if you have something in writing that promises no points.

Two more things to mention:

First, check your lock in agreement for a lock expiration date. You want to make sure that the loan can close and the funds disburse by this date. Rates have risen, and you don't want to lose your lock, even if it costs you a few days interest.

Second, remember that by law there is a three day rescission period for refinances. This means the loan doesn't actually fund until three business days have passed after the settlement date. So your actual settlement date will be earlier than the last day of the month.

My advice? Write up a history of your experience and deliver it to the highest ranking manager you can find. I would be surprised that a good manager would think the service you received was acceptable.