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Does Your Closing Date Make A Difference?
There’s a common belief that you can “save” a
lot of interest by settling at the end of the month. Is it
true? Does it make a difference if you settle at the beginning
of the month or at the end?
All mortgage payments are paid in “arrears”.
This means that any mortgage payment covers the interest
owed for the preceding month. It’s the opposite of
rent payments, which are due in advance.
Since mortgage payments are paid in arrears, your first
mortgage payment will always be due at the end of the first
full month you took out the loan. Here are two examples:
- If you settle in early December, your first full month
will be January and your first payment will be due February
1st – almost two months after settlement.
- If you settle at the end of November, your first full
month will be December and your first payment will be due
January 1st _ about one month after settlement.
If you settle in the beginning of any month, you will be
required to pay the interim interest from the day you settle
to the end of the month.
If you settle on the tenth of the month, you would pre-pay
roughly 20 days of the interest to cover the period from
the tenth to the end of the month.
If you settle on the 30th you wouldn’t pre-pay any
interest but your first mortgage payment would be due in
one month’s time.
So, settling at the end of the month doesn’t “save” you
money. However, if you are short of cash, it will reduce
the amount of funds required at the settlement table.
Special FHA Concerns:
While we’re on the subject of when to close, let’s
also talk a little bit about loan payoffs.
Millions of Americans are taking advantage of lower interest
rates and refinancing their mortgage. For those folks who
have Federal Housing Administration loans, it’s important
to know that FHA collects the entire month’s interest
when the loan is paid off.
Basically, this means that if you pay off your FHA loan
on the first of the month, FHA will charge interest for the
entire month. So for those folks who are refinancing their
FHA loan, it’s best to settle at the end of the month.
Your broker of loan officer can answer specific closing
questions. In all cases, after you settle keep your closing
documents in a save place – you’ll want them
when you sell or refinance and also for tax and estate purposes.
Written by Henry Savage Copyright
2002 Realty Times All Rights Reserved
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