By Sabrina Karl
You might have heard from a friend or even a mortgage professional that closing your home loan at the end of the month is your smartest move. While that can be sound advice, it’s not uniformly best.
The first thing to understand is that mortgage financing is like everything else: there’s no such thing as a free lunch. While the date you close will affect how much you outlay when, you’ll still pay interest on every day you have a mortgage, no matter your closing date.
Second, the rules are different for refinancing. Refinancers will owe interest to both their existing and new lender for all the days of the month. So the closing date makes little difference.
If you’re opening a new mortgage, closing late in the month reduces the prepaid interest you’ll need to pony up at closing. That’s because you’re required to prepay the interest that will accrue between closing and the end of that calendar month.
You’ll then get to skip a mortgage payment in the first post-closing month, since payments kick off on the 1st of the month following a 30-day period after closing.
But closing earlier in the month offers different advantages. True, you’ll need to bring more funds for prepaid interest to closing. But that will be offset by skipping the next two monthly payments instead of one.
Closing early in the month also keeps you out of month-end loan traffic jams, when the highest volume of mortgages are being processed — with some closings invariably getting delayed.
Ultimately, different closing dates won’t substantially impact on your ultimate mortgage costs. But whether you’re initiating a new mortgage or refinancing, or prioritizing minimal closing costs versus skipped payments, you can choose a closing date that offers the best advantages for your situation.