After you’ve signed all of those papers at the closing table and have the keys in your hand, it’s finally real — you’re a homeowner! Which means you have a brand-new responsibility, a mortgage payment. Do you know when the first mortgage payment is due after closing?
Instead of figuring out when your first payment is due after you have closed, it’s better to figure out when you want to make your first payment, and then close accordingly. Here’s what you should know.
When is the first mortgage payment due after closing?
You’ll make your first payment on the first of the month after you’ve owned the home for 30 days. So if you close on July 18, your first mortgage payment will be due September 1. At closing, you will have to prepay the interest on your loan for the days when you own the house but have not yet made a payment. This interest payment will get wrapped into your closing costs.
Unlike rent, mortgages are paid in arrears. This means that the lender will collect your mortgage payment at the end of a given period of time (the month, in this case) instead of at the beginning. It’s the opposite of how we pay rent.
“When you’re paying rent, you’re paying for that next month,” explains April Wise, Mortgage Underwriter and Associate Product Manager at HomeLight Home Loans. “When you’re paying a mortgage, you’re actually paying for the month behind.”
If you are going from renting a property to owning a property, you can arrange your payment so that you essentially get to “skip” a month before any housing payment is due. Or, since you won’t have to make a payment until the following month, you could always continue to rent for one more month in order to give yourself more time to move everything out.
Your first mortgage payment will include the principal and the interest for the first full month that you own the home. You won’t owe a principal payment for any “extra” days beyond that first full month, because you will have had to prepay the loan interest for those “extra” days at the time of closing.
When your payment is due if you close…
Wise suggests that you double-check and verify whether your mortgage has transferred to the servicer prior to making your first payment. Usually, the lender that gives you the mortgage “isn’t going to the company that will collect your payments over the life of the loan; it’s going to be transferred to the servicer.” But the timing of this transfer doesn’t always happen before your first payment, so it’s safest to double check with your lender to determine where you should send that first payment.
At the beginning of the month
More interest, more time: If you close at the beginning of the month, you will have to pay the largest possible amount of interest at closing, but you’ll also have a lot of time before you have to make your first mortgage payment.
End of the month
Less interest, less time: If you close at the end of the month, you’ll have barely any additional, prepaid interest to pay, but your first payment will come much sooner.
However, if you close at the end of the month, “you run the risk of having a delay,” says Adam Howell, an experienced Rochester, Minnesota, real estate agent who works with 69% more single-family homes than the average agent in his area.
Delays can happen because the end of the month is often the busiest time of the month for the mortgage banker, attorney, closing company, or title office.
Wise recommends that if you have saved up for closing costs almost exactly to the penny (and not for interest), it may be best to close at the end of the month.
Middle of the month
Not as much interest, decent amount of time: If you choose the middle of the month to close, you will pay less interest and still leave yourself with a month and a half before the mortgage payments begin. This is why a lot of people choose the middle of the month; it’s a happy medium in more than one way — and if the closing is delayed and takes place later in the month, you’ll pay less at closing.
Close before noon
Howell says he often recommends closing in the morning because you may otherwise run the risk of the purchase not being funded. That means “the seller won’t get their funds until the day after,” he shares.
If you close on a Friday afternoon and the purchase isn’t funded until the next day, the seller doesn’t get the funds until Monday. “And then you run the risk of the seller saying, ‘Well we’re not actually closed until I get my funding.’”
When are payments considered late?
While mortgage payments are due on the 1st of the month, Wise says that they’re generally not considered late until after the 15th. As for impacting your credit, she says that payments will generally not affect your credit until they’re 30 days late. If you pay on the 16th, you will likely be charged a late fee, but you probably won’t have anything show up on your credit report.
However, this doesn’t mean that Wise suggests that you put off making your payment.
“My best piece of advice, and I think the best practice, is to pay a mortgage payment early; don’t get in the habit of pushing it all the way out to the 15th because that spot for time is built in for you for cases of emergency.”
Let’s try it out!
Let’s walk through three examples of when a mortgage payment would be due depending on the closing date selected.
First, we’ll calculate the daily interest rate (which will likely be listed on your Closing Disclosure as “per diem interest”). For the sake of these examples, let’s imagine that you are borrowing $300,000 to buy a house at a 4% interest rate.
- $300,000 X .04 = $12,000/year
- $12,000 / 12 = $1,000/month
- $1,000 / 30 = $33.33 — this is the daily interest rate
Each month you pay back part of your principal as well as the interest accrued for the month. It is important that you are able to calculate the daily interest rate in order to determine the total amount of interest that has accrued for the month.
Closing date: April 3
Because you close on April 3, your first 30 days of owning the home will end on May 4 (the day you close on the house doesn’t count). Remember that your first payment is due on the first of the month after the first 30 days you own the house. Your first mortgage payment will be due on June 1.
The mortgage payment you make on June 1 will include the loan principal and the loan interest for May. However, since you closed on April 3, you will have to prepay the interest on the loan that will accrue between April 3 and 30. You’ll have to make that payment at closing. In this example, because you closed on April 3, you will owe interest on those 28 days.
- $33.33 X 28 = $933.24
Closing date: April 16
If you close on April 16, your first mortgage payment will also be due on June 1.
The mortgage payment you make on June 1 will include the loan principal and the loan interest for May. However, since you closed on April 16, you will have to prepay the interest on the loan that will accrue between April 16 and 30. You’ll have to make that payment at closing.
In this example, because you closed on April 16, you will owe interest on those 15 days.
- $33.33 X 15 = $499.95
Closing date: April 29
By now you may be getting the hang of this. Once again, your first mortgage payment will be due on June 1. When you make your first mortgage payment on June 1, you will also pay interest for May.
When you close on a home, you prepay the interest for the rest of the month in which you close. When you close on April 29, you only have two days of accrued interest to pay.
- $33.33 X 2 = $66.66
So when should I set my closing date?
When deciding on a closing date, it’s really about what’s most comfortable for you.
Do you prefer to spend less money at the closing table? Or would you prefer additional time to be able to provide your first mortgage payment?
If you still feel less-than-confident about your payment schedule or you’re not sure which day makes the most sense for you to close, a qualified real estate agent can help you figure it out.
Most first-time buyer nervousness comes from not knowing what to expect. “I always encourage the buyer to ask a lot of questions — ask me a lot of questions,” says Howell. He simply encourages buyers to keep the communication going.
Talk to your agent about the best day of the month to set your closing date for your finances, your moving needs, and anything else that has to happen — the mortgage is just one of many parts, and you’ll have what feels like a 30-day grace period to settle in no matter which day you pick.
Header Image Source: (Sam Wordley / Shutterstock)