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, often referred to 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, in actuality, you are paying for that month in the form of a prepayment.
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 day of a month, and always includes interest for a full month. And since your loan can close on any day of the month, there likely will be an interest adjustment on that closing date.
Scenarios That Can Affect First Payment's Due Date
If you close on July 29, for example, Mtgprofessor.com explains that you pay interest at closing covering July 30, 31 and Aug. 1. Your first monthly payment will be due Sept. 1. So at closing, you pay interest for the last three days of July. The first monthly payment on Sept. 1 pays the interest for the full month of August. Furthermore, Mtgprofessor.com notes that if you close during the first week of July, you might 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 would be 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 would lead to you needing less money at closing to cover the interest.
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. Closing later in the month provides a short-term impact because it 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.