When you buying a home, your first mortgage payment is due on the first day of the month after the first full month that you’ve owned the home. For example, if you close the sale of your new home on January 25, the first full month you spend in the home will be February, so your first payment will be due on March 1.
Arrears
The timing of your first mortgage payment demonstrates a key difference between the structure of mortgage payments and rent payments. Renters usually pay in advance: The money you pay on April 1 is for occupancy in the month of April. By contrast, mortgages are paid “in arrears.” This means that you pay for occupancy in the month just completed. In other words, a mortgage payment that’s due on February 1 covers occupancy for January.
Amortization
You may be wondering why you don’t have to make a mortgage payment on the first day of the month immediately after you buy the house. For example, if you close the sale on January 25, why there isn’t a payment due on February 1 that covers January 25 thru the 31? The answer has to do with “amortization,” which is the way your lender calculates your payment. In an amortized mortgage, every payment covers a full month, and every payment is for the same amount. The formulas that lenders use to amortize mortgages only work with whole months (e.g., 360 months for a 30-year loan, or 180 months for a 15-year loan). They can’t account for extra days between the closing date and the first day of the next month.
Per Diem Interest
Although you don’t have a mortgage payment due on February 1 in the previous example, this doesn’t mean you get to live in the house for free from Janaury 25 to January 31. Your lender still charges you interest for those days, at a daily rate based on the amount and interest rate of your mortgage loan. This is “per diem” interest, and you pay it upfront at the closing.
Closing Date
Depending on when you close the sale, per diem interest can add hundreds of dollars to your closing costs. For this reason, many homebuyers try to schedule the closing date as close to the end of the month as possible; having fewer days left at the end of the month means less money in per diem interest.
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we’d be happy to assist you!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickeringto, 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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