A very popular question from a home buyer is “When is my first mortgage payment due after closing?”. More than likely your mortgage payment is due on the first of each month. Actually, traditional mortgage loans like conventional, FHA, VA, and USDA loans require payments due on the first of each month. But, there are sometimes options of the first payment date. In this article, we explain…
How a first payment due date is determined
Mortgage payment vs. rent
Interim interest meaning
Interim or daily interest calculation
Possible payment options
Interim Interest Meaning
Interim interest, also called per diem interest, is basically how much interest is charged for a partial month that a borrower has use of funds. Each day a borrower has a balance on a loan with interest, there is an interest charge. Interim interest is the total of the daily interest charge from the funding date through the 1st of the following month. So, the interim interest calculation would be number of days times the daily interest charge. Since interim interest covers the potential partial month between closing and first payment, then what does the first mortgage payment cover?
How Mortgage Interest Works
Mortgage interest is paid in arrears. So, what does that mean? Probably the easiest way to explain this is to compare mortgage payments to rent. When rent is paid on the first, it pays ahead. For instance, paying rent on August 1 pays ahead for the month of August. Conversely, a mortgage payment pays for accrued interest. Therefore, an August 1 payment pays for interest that has accrued for July. Further down in this article, there are examples of interim interest charges. These depend on the closing date and first payment date. While reviewing the chart, keep in mind that the first payment date covers the previous full month of interest charged.
Do I have a Choice of First Mortgage Payment Date?
Actually, there are times where a borrower has a choice of the first payment due date. The payment could be the 1st of the upcoming month or possibly the first of the following month. Although, this is only during a certain window of the month. At OVM Financial, this option is available for fundings between the 1st and 5th of each month. Other lenders may vary by a few days in this area. Below are examples of how closing dates as well as the interest due or interest credit will affect the payment due date.
|Closing Date||Days of Interest||First Payment Date|
|June 27||4||August 1|
|July 1||0||August 1|
|July 1||31||September 1|
|July 2||-1||August 1|
|July 5||-4||August 1|
|July 6||26||September 1|
|July 15||17||September 1|
Many buyers and Realtors automatically choose the last day of the month to close. Often the reason is to keep the daily interest low. But, as you can see the there are reasons and strategies to close on other dates. So, before automatically choosing the last day, discuss payment due date options with your loan officer. Plus, the last day of the month is the busiest for lenders, attorneys, and Realtors which can cause a three ring circus even for the most perfect purchase process.
The First of the Month Due Date Does Not Work For Me
A very popular question is “Can I change my payment due date?”. It could be that there are already other large car or student loan payments due on the first or that the borrower’s income is deposited later in the month. Unfortunately, the actual due dates cannot change, but there are solutions to making the monthly payment!
15 Day Grace Period
The first solution is that mortgage lenders allow a 15 day grace period before charging a late fee. That means a payment does not need to be paid exactly on the first. As long as the payment is received within 15 days of the due date, there should be no late charge. So, this helps borrowers who need a little later due date.
Later in the Month Payment Idea
What if a mortgage payment made during the first 15 days of the month just does not fit in the budget? First of all, no one should consistently pay past the grace period and accrue late payment charges. Then, how about pay early? That’s right! A buyer could make their payment date what they like by paying early. For instance, let’s say the closing date is June 15th and the first payment is due August 1. The buyer really wants a due date on the 25th of each month. Well, the buyer could make the first mortgage payment on July 25th and continue doing such every month. In reality, the payment will always be earlier than the actual due date.
When Will a Late Payment Show on my Credit Report?
Just because there is a late fee charged, it doesn’t mean a late payment reports on credit. Being 5, 10, 15, or even 29 days late does not report late to the credit bureaus. Lenders will report payments 30 day late to the credit bureaus. Next, there are 60, 90, or more late payments. If a borrower gets too far behind, then a lender could initiate the foreclosure process. When possible, it is so important not to have 30 day or more late payments. This could majorly affect a borrower’s credit report.
Have further questions on a first payment date, how a mortgage works, and looking for a mortgage?