When Is Your First Mortgage Payment Due?
You have some control over how soon it comes due
You might have heard that you won't have to make a mortgage payment for some considerable time after you close on your new home, but you're uncomfortable counting on that because you've worked so hard to build good credit. You don't want to risk messing it up. So how do you know when your first mortgage payment is due?
It's easier to figure out than you might think if you understand two simple rules. Amortization is the key to how a mortgage works and when your first payment will be due.
Rule No. 1 Is Mortgage Interest Is Paid in Arrears
Your first mortgage payment is typically due at the beginning of the first full month after closing and every month thereafter, and interest accrues on your principal balance.
Mortgage interest is paid after it's accumulated, not before. Your June 1 payment would include interest for the entire month of May, or the entire portion of May that you owned the home if that was the month in which you closed.
Rule No. 2 Is Principal Is Paid in Advance
A mortgage payment consists of two parts: interest and principal. The principal portion of your mortgage payment is paid going forward, and it reduces the principal balance you owe as of the date it's due and is paid. You'll pay interest on a lesser balance in the ensuing month.
Putting It All Together
The closing agent will collect interest from you for up to 30 days before the first full month when you buy a home and obtain a mortgage. This interest will be listed on your closing statement, and it's charged as a closing cost.
You'll be charged prorated daily interest from March 15 through March 31 if your closing date is March 15. The interest collected at closing will cover the interest due on your mortgage for those last 16 days of March. Then your first mortgage payment will be due on May 1, and that payment will include the interest for April.
Let's Do the Math
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.
You can calculate your daily interest for the period of time prior to 30 days before the first payment is figured by taking $200,000 times the interest rate of 5%. Now divide that number by 12 months and divide the result again by 30 days.
Your daily interest rate works out to $27.78. You'll owe 16 days of interest for March, or $444.48, which you would pay at closing if you close on March 15.
You'll make a mortgage payment of $1,073.64 on May 1. That payment will pay the interest for April: $1,073.64 less $833.33—a full month's interest for April—equals $240.31, which is representative of the reduction in principal. Your unpaid principal mortgage balance as of May 1 is $199,759.69, subtracting $240.31 from $200,000.
The Bottom Line
You can avoid paying all that prorated interest out of pocket at closing if you close as near to the end of the month as possible.
You'll have a long hiatus before that payment comes due if you close at the beginning of the month, but you'd have to make a fairly substantial interest payment for that month's interest at closing.
You'll most likely welcome some breathing room between closing and the due date of your first mortgage payment, given the large sum of money you'll pay at the closing. But you're not actually skipping any payments. Technically, while it might seem like you're getting a month free of a housing payment, you really aren't.