Understanding the timing of your first mortgage payment is crucial for effective financial planning as a new homeowner. Unlike rent, which is typically paid in advance, mortgage payments are made in arrears, covering the previous month’s interest. This distinction influences when your initial payment is due after closing on a home.
Mortgage Payments: In Advance vs. In Arrears
Rent payments are usually made at the beginning of the month for that month’s occupancy, known as paying in advance. In contrast, mortgage payments are made at the end of the month, covering the interest accrued during the previous month—this is paying in arrears. This structure affects the scheduling of your first mortgage payment.
Determining Your First Mortgage Payment Due Date
The due date for your first mortgage payment depends on your closing date. Typically, it is due on the first day of the second month following your closing. This schedule allows for a full month between closing and the first payment.
Example Scenarios:
- Closing Early in the Month: If you close on April 5, your first mortgage payment would be due on June 1. This schedule provides nearly two months before the first payment is due.
- Closing Late in the Month: If you close on April 25, your first payment is still due on June 1, resulting in a shorter period before the first payment.
This timing occurs because mortgage payments cover the previous month’s interest. Therefore, the payment due on June 1 covers interest accrued in May.
Impact of Closing Date on Prepaid Interest
At closing, you’ll prepay interest for the remaining days of the closing month. The number of days affects the amount of prepaid interest due at closing.
Example:
- Closing on April 5: You’ll prepay interest for April 5–30.
- Closing on April 25: You’ll prepay interest for April 25–30.
Closing earlier in the month results in higher prepaid interest at closing but provides more time before the first mortgage payment. Conversely, closing later reduces prepaid interest but shortens the period before the first payment.
Grace Periods and Late Payments
Most lenders offer a grace period, typically 15 days after the due date, during which payments can be made without incurring late fees. For example, if your payment is due on June 1, you may have until June 15 to pay without penalties. However, paying after the grace period can result in late fees and negatively impact your credit score.
Strategies for Managing Your First Mortgage Payment
- Coordinate Closing Dates: Schedule your closing date to align with your financial situation. Closing earlier in the month provides more time before the first payment but requires higher prepaid interest at closing. Closing later reduces prepaid interest but hastens the first payment due date.
- Budget for Prepaid Interest: Include prepaid interest in your closing costs to avoid surprises. Your lender can estimate this amount based on your closing date.
- Set Up Automatic Payments: Enroll in automatic payments to ensure timely mortgage payments and avoid late fees.
- Maintain Open Communication: Stay in contact with your lender to understand payment schedules and address any concerns promptly.
Your first mortgage payment is typically due on the first day of the second month after closing, allowing for a full month between closing and the initial payment. The closing date influences the amount of prepaid interest due at closing and the timing of your first payment. By understanding these factors and planning accordingly, you can manage your mortgage payments effectively and maintain financial stability as a new homeowner.
References:
Experian. (2021, May 18). When Is My First Mortgage Payment Due After Closing?
RefiGuide.org (2023, June 27) Mortgage Pre-Qualification vs. Loan Pre-Approval
LendingTree. (2021, February 26). When Is My First Mortgage Payment Due?
