By Sabrina Karl
If you’re contemplating how much to stretch on a down payment for a new home, or how much of the closing costs you can afford to pay on closing day vs. folding them into your loan, you might find yourself projecting what your cash flow will be after closing. Fortunately, mortgages have some built-in good news for you there.
The day of the month you close will impact how much is due at closing. But one thing won’t change, no matter when you close: You won’t have to make a mortgage payment the next month.
That’s because mortgages are paid in arrears, meaning for the month already passed, in contrast to how rent covers the coming month. In addition, the official due date of every mortgage is the first of the month, making it a payment for the previous calendar month.
Since people close on all different dates, but mortgage payments need to be the same every month once they start, your closing process evens things out by charging you the interest required to cover the remainder of the current month. Close on the 5th and about 25 days of interest will be charged at closing. Close instead on the 28th and you’ll only owe about two days of interest.
What happens as a result is that no one owes a mortgage payment on the first of the month following closing, since you’ll have squared up already for that month at closing. In turn, that means your very first mortgage payment won’t be due until the 1st of the second month after you close.
In other words, if you close on any date in April, you’ll get to skip May and your mortgage payments will begin June 1st, giving you a little cushion of time to rebuild your cash reserves.