After you close on your new home, you should expect your first payment to be due within two months of your closing date. The seemingly long lag is due to how much in interest you will be required to pay at closing. The same is true if you are refinancing an existing mortgage. The lag can give you some breathing room after the considerable amount of money you will have spent during your closing.
Mortgage payments are generally paid in arrears to cover the previous month’s interest. When you close on a mortgage for a house, you must prepay any of the interest that is accruing on your loan starting from the date of your closing through the end of that month. This interest, also known as "prepaid interest," is added to your closing costs. So while it may seem like your first payment on your mortgage is delayed by a month, you actually paid for that month at closing.
How Interest Payments Are Made
While you pay interest beginning on the closing date, you may have choices in how you pay that interest, according to Mtgprofessor.com. The first payment on a home loan is always due on the first of the month and always includes a full month's interest. Since your loan can close on any day, there will likely be an interest adjustment on your closing date.
Scenarios Affecting Due Dates
Mtgprofessor.com offers an example: If you close on July 29, you pay interest at closing covering July 30, 31 and Aug. 1. Your first monthly payment is due Sept. 1. At closing, you pay interest for the last three days of July. The first monthly payment on Sept. 1 covers August interest. If you close during the first week of July, you may have a choice in how you pay the interest. You could pay the interest for the balance of days remaining for that month, along with the first regular payment, and it would be due Sept. 1. You will likely need more money at closing, but the first payment is pushed out by almost a month. You can also opt to close during the first week of July and receive an interest credit at closing. That would mean your first monthly payment would be due Aug. 1. Mtgprofessor.com explains that you would end up needing less money at closing to cover the interest.
Timing Your Closing
You can benefit from scheduling your closing date as close to the end of the month as possible. According to LendingTree, closing later in the month can help you reduce upfront closing costs. A later closing can free up dollars at a time when you may be strapped for cash. The end of the month can also be a very busy time for closing agents and mortgage lenders, notes LendingTree. If you are able to close at the beginning of the month, you might have a few more days before you have to come up with your first mortgage payment.
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