In which scenario is overlapping interest an issue?

Overlapping interest occurs when there are two loans for the same property active at the same time, which can lead to a situation where the borrower is paying interest on both loans simultaneously. In the scenario where the loan funds on a Friday but the old loan closes later, overlapping interest becomes a critical issue as the borrower begins to incur interest on the new loan before the old loan is fully paid off. This results in a period where both loans are operative, causing the borrower to be responsible for payments on both loans.

Understanding this concept is vital when managing loan closings because it can significantly affect the borrower’s financial obligations. In this case, since the new loan has already funded, the borrower would be starting to pay on that loan while still being liable for the old loan until it is officially closed. This is particularly concerning for borrowers as it can increase their overall loan costs if not managed properly.

The other scenarios do not involve this type of overlapping financial obligation. Refinancing on a holiday or expediting closing does not inherently affect loan interest responsibilities in the same manner, and a loan amount exceeding the home value primarily deals with issues of appraisal and loan eligibility rather than overlapping interest.