When you buy a home, you will have a date on which you close the mortgage.
On closing day, the loan starts, and the transaction is completed.
Your first mortgage payment will be due one month after the last day of the month you close.
Your reoccurring monthly payment will be due on the first of each month.
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Benefits of Closing at the End of the Month
At closing, you pay accrued interest for the day of closing through the end of the month. The later on in the month you close, the less pro-rated interest you will pay. Because of this, closing at the end of the month means you will pay less at closing.
If you close earlier in the month, for example, on the 15th of August-you’ll owe interest from the 15th through the end of the month. But if you close later on in the month-say the 28th, you will only pay interest for the 28th through the 31st.
If money is tight and you are spending a large portion of your savings on your down payment, consider closing later on in the month to reduce the total amount you will owe at closing.
Pre-paid Interest Savings on $250,000 Loan
- Mortgage amount: $250,000
- Interest rate: 5%
- Daily interest accrued: ($200,000 x 5%) 1/365 = $34.25 per day
- Closing August 15th, prepay 15 days of interest (15 x $34.25 = $513.75)
- Closing August 29th, prepay 2 days of interest (2 x $34.25 = $68.50)
Interest Charged as a Portion of Closing Costs
- Mortgage payments consist of two parts: Principal and Interest
- The principal portion reduces the principal balance on the due date
- Interest is paid 30 days in arrears
- Escrow includes home insurance, property taxes, and mortgage insurance
- Escrow account payments are collected monthly
Skipping a Month Before First Payment is Due
Mortgage payments are made in arrears, as opposed to rent payments, which are paid in advance. Because of this, you do not have a mortgage payment the month following the closing. Your first payment is not due until one month after the last day of the month you close in.
For example- you close on August 10th, and your first mortgage payment will not be due until October 1st.
Set Up Your First Mortgage Payment to be Due in 2 Months
You can move your closing date around to benefit you if you want more time before your first payment is due. If you are set to close at the end of the month, say August 28th, your first payment will be due October first.
You could move your closing date forward to the next month – say September 3rd, so you will have until November 1st before your first mortgage payment is due, which is almost 60 days from the day you close.
Monthly Mortgage Payments Due on the 1st
All mortgage payments are due on the first of each month. Most mortgage lenders consider the payment late on the 4th of the month. Most lenders will have a grace period of 18-30 days before a late fee is assessed.