Everyone knows mortgage payments are always due on the first day of the month. But, while this is correct, there’s more to the story.
If you make your mortgage payment on June 1, the principal and interest you’re paying are applied to the period of May 1 through May 31. This is called making payments in arrears, meaning you’re paying the principal and interest for the period after you use it.
And it’s important information to know when you are buying a home.
Why? Because the day of the month on which you have your closing will determine how much principal and interest you will pay at that time.
Take an April 22 closing: At that time, you’ll pay principal and interest to the lender from that date, April 22, through the end of the month, April 30.
As payments are made in arrears, the next mortgage payment that you make will be due on June 1. This will cover principal and interest for the month of May. The cycle then repeats itself.
So, if you close earlier in the month, say on April 4 or 5, you can expect to pay more in principal and interest than if you closed on the 24th or 25th.
This is important to know, in that it will factor into the equation when you and your mortgage professional are determining how much money you will need to take to closing.
If you have any questions about this, contact him or her for more details.