Did you know if you close in the first few days of the month, you may be able to choose when to make your first mortgage payment? This can help if you have a cash flow issue right after closing.

When you make a mortgage payment, you pay the prior month’s interest. For example, if you make a mortgage payment on April 1st, you are paying March’s interest. The reason is that the lender can only charge you interest for the time you lived in the home. This is different than rent, i.e. when you make the April 1st rent payment, you are paying to live there for the month of April.

If you close within the first few days of the month, many lenders will give you the option of when to make your first payment. For example, if you close on March 3rd, you may be able to choose April 1st or May 1st as your first payment. If you choose April 1st, the lender will give you a 3-day interest credit at closing as you did not live in the property for the first 3 days of March. When you make the April 1st mortgage payment, you will still pay all of March’s interest, as you were already credited the 3 days interest for the days you did not live in the home.

Alternatively, you may be able to make your first payment on May 1st. Many people choose this option as they believe they “skip a month” of payments. In reality, you are not skipping a month, rather, the lender will collect interest from March 3rd to March 31st at closing, thus you prepay the interest. When you make the May 1st payment, it pays April’s interest.

If you are closing at the beginning of the month and want to review your options, give us a call, we can help.