When Is Your First Mortgage Payment Due?
Homebuyers get a month grace period before making the first payment
Question: When is the first mortgage payment due after closing on our home?
A reader asks: "I really don't understand how mortgage payments work, but my agent tells me that I won't have to make a payment for a long time after I close on my new home. I've worked hard to keep up my credit and don't want to take a chance on messing it up. How do I know when my first mortgage payment is due?"
Answer: It's easier than you think to figure out when your first mortgage payment is due.
Don't let the word amoritzation scare you. Understanding amortization is the key to understanding how a mortgage works. Amortization is the term that basically means your unpaid balance is re-calculated every month based on payments to the principal and interest. By the end of your mortgage period, usually 30 years, your loan is paid off.
Mortgage Interest Is Paid in Arrears
Arrears means money owed from the past. Mortgage interest is paid after it has accumulated, not before. So, your first mortgage payment is paid at the beginning of the first full month after closing and every month thereafter.
Conversely, if you rent a home on June 1, for example, your rent would be due June 1 because it pays for the month of June in advance. But mortgage interest is paid in arrears, so a June 1 mortgage payment pays the interest for the entire month of May.
When Do You Make Your First Mortgage Payment?
When you buy a home and obtain a mortgage, the closing agent will collect interest from you up to the date of 30 days before the first full month.
The interest is listed on your closing statement and charged as a closing cost.
- A mortgage payment consists of two parts: interest and principal.
- Interest is always paid 30 days in arrears.
- The principal portion of your mortgage payment reduces your principal balance on the date it is due.
Let's say your closing date is March 15.
You will be charged prorated daily interest from March 15 through March 31 on your closing statement. The interest collected at closing will cover the interest due on your mortgage for those last 16 days in March. Then, your first mortgage payment will be due on May 1, and that payment will pay the interest for April.
First Mortgage Payment Calculation Explained
Let's say you borrow $200,000 at 5% interest. Your monthly payment would be $1,073.64, payable in equal monthly installments for 30 years.
Your daily interest rate charge -- for the time period prior to 30 days before the first payment -- is figured by taking $200,000 times the interest rate of 5%. Then, divide by 12 months -- $833.33 -- and again by 30 days.
Your daily interest rate is $27.78. If you close on March 15, you owe 16 days of interest or $444.48, which you pay at closing.
When you make a payment of $1,073.64 on May 1, that mortgage payment will pay the interest for April as follows:
$1,073.64 - $833.33 (April's interest) = $240.31 (principal reduction). Subtract $240.31 from $200,000, and your new unpaid balance as of May 1 is now $199,759.69.
You'll most likely welcome the breather of time between closing and your first mortgage payment, given the large sum of money you'll pay at the closing.
But while it might seem like you're getting a month free of a housing payment when you close on March 15, you really aren't.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.