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As a home buyer, when you finally get to the closing table and receive keys to your new home, a great question to ask is….when is your first mortgage payment due?

Unlike a rent payment (paid in advance), your mortgage payment is paid after the fact (paid in arrears).

When buying a home and obtaining a mortgage, interest is collected from you as a closing cost and outlined on your closing statement.

A mortgage payment consists of two parts: mortgage interest and mortgage 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.

For example, if your closing date is March 15, you will be charged prorated daily interest from March 15 through March 31 on your closing statement.  Your first mortgage payment will be May 1 as that payment will pay the interest for April.

Let’s say you are borrowing $200,000 at 5% interest.  Your monthly payment will 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 are closing on March 15, you will owe 16 days of interest or $444.48, which will be charged on your closing statement as a closing cost.

When you make a payment of $1,073.64 on May 1, it will pay the interest for April as follows:

$1,073.64 minus $833.33 interest for April equals $240.31 principal reduction.  Subtract $240.31 from $200,000, and your new unpaid balance as of May 1 is now $199,759.69.

It may seem like you’re getting a free ride when you close on March 15th and your first mortgage payment begins on May 1, but you really aren’t.

Contact me today with any questions or begin your home buying search today!