First Payment After Closing For Mortgage Loan Borrowers
This ARTICLE On The First Payment After Closing For Mortgage Loan Borrowers Was PUBLISHED On August 14th, 2019
One of the most common questions asked by new homebuyers is when is the First Payment After Closing.
- Many are told by other homeowners that it will be a while prior for them in making the First Payment After Closing on the new home
- You want to make sure that you make your First Payment After Closing and not be late
- Many have worked very hard in getting good credit and do not want a late payment reporting on your credit report
- So how does the new homeowner know when their first payment after closing is? This is very easy to figure out
In this article, we will cover and discuss the First Payment After Closing For Mortgage Loan Borrowers.
Understanding Mortgage Interest Payments Are Paid In Arrears
A new mortgage borrower’s first payment after closing is due at the beginning of the first full month after the home closing.
- Then, the mortgage payments are due every month thereafter
- Mortgage interest always accrues on the unpaid principal balance of the mortgage
- Interest on a mortgage is always paid after the interest has accumulated and not prior to it
- For example, if your August mortgage payment would include the mortgage interest of the entire month of July
Or if you closed on your home in the middle of July, you would pay the mortgage interest for the month of July that you have owned and occupied the home.
Understanding Mortgage Principal Payments Are Paid In Advance
Most borrowers have a mortgage escrow. A mortgage payment consists of the following:
The mortgage payment mainly consists of principal and interest. The principal portion of the mortgage payment is paid in advance. As borrowers pay the principal payment portion of the mortgage payment, the balance gets reduced. The interest of the mortgage is paid on the lesser balance in the following month.
How The Mortgage Payment Process Works
The title company’s closing agent collects mortgage interest payments up to 30 days prior to the first full month at closing.
- The mortgage interest collected is stated on the home closing statement
- This is charged as a closing cost on the home loan. If a borrower closes their home loan in March, the borrower will be charged prorated mortgage interest from the 15th of the month to the 31st of the month for March
- This will cover the interest that is due on the mortgage for the prior 16 days of the month
- The first mortgage payment that is due by the borrower will be due on May 1st
- That payment will include mortgage interest for the month of April
Kim Lambert is a senior processing manager at Gustan Cho Associates. She uses a simple case scenario to explain the above concept:
Let’s say you borrow $200,000 at 5% interest. Your monthly payment would be $1,073.64, payable in equal monthly installments for 30 years. You can calculate your daily interest for the period of time prior to 30 days before the first payment is figured by taking $200,000 times the interest rate of 5%. Now divide that number by 12 months and divide the result again by 30 days. Your daily interest works out to $27.78. You’ll owe 16 days of interest for March, or $444.48, which you would pay at closing if you close on March 15. You’ll make a mortgage payment of $1,073.64 on May 1. That payment will pay the interest for April: $1,073.64 less $833.33—a full month’s interest for April—equals $240.31, which is representative of the reduction in principal. Your unpaid principal mortgage balance as of May 1 is $199,759.69, subtracting $240.31 from $200,000.
Structuring Your First Mortgage Payment
Borrowers can schedule their home closing towards the end of the month and avoid paying the prorated interest out of their pockets. This means less closing costs. If you want to delay making the first mortgage payment after closing your home loan, then you need to schedule the closing towards the beginning of the month but will have a larger closing cost to cover the interest payment. Closing costs can be covered with a sellers concession and/or lender credit.
Kim Lambert adds:
You’ll most likely welcome some breathing room between closing and the due date of your first mortgage payment, given the large sum of money you’ll pay at the closing. But you’re not actually skipping any payments. Technically, while it might seem like you’re getting a month free of a housing payment, you really aren’t.
For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. The Team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays. We are direct lenders with no lender overlays on government and conventional loans. We are also experts in Non-QM Loans and Bank Statement Loans For Self-Employed Borrowers.