First Mortgage Payment

Sep 27, 2022 By Susan Kelly

Your monthly mortgage payment is due if it is not received by the first month. The very first payment on your mortgage, on the other hand, won't be due until the first day of the month following the closing. Instead, it is due on the first day following the first full month after closing your business. That means if you close on March 15, the first payment on your mortgage isn't due on April 1; rather, it's due on May 1.

If you choose to close at the beginning of the month rather than the middle of the month, you will have a gap in between when your first payment is due that is even longer. If you find this strange, you must grasp two key aspects of mortgages: the interest is paid behind schedule, while the principle is paid in advance.

Mortgage Interest Is Paid in Arrears

Mortgage interest is often paid "in arrears," which implies "after it has been accumulated" rather than "before it has been accrued." At the time of closing, interest will begin to accrue on your mortgage, and it won't stop doing so until the loan is paid off in its whole. During the closing process, you will be required to make a prepayment of the interest for the month in which you close.

If you close the home in March, the interest incurred on the mortgage for March that you owned the property will be paid in full at the time of closing. If you terminate your account on March 15, you will be responsible for paying the prorated daily interest from March 15 through March 31. You will be required to prepay interest for the whole month if you close on March 1. If you close on March 30, you will prepay the interest for the 30th through the 31st of March.

Principal Is Paid in Advance

The principal and the interest are the two primary components that make up a mortgage payment. The payment for the principal amount of your mortgage is made in advance in preparation for the following month. Every payment you make toward the principal will bring the total amount that you owe down. In the next month, the interest you pay will be calculated based on a lower total sum. In this example, the first mortgage payment you make on May 1 includes the interest that is due for April and the principal that is due for the month of May.

Let's Figure It Out Together

Let's say you borrow $200,000 at an interest rate of 5%. Your monthly payment would be $1,073.64, which would be paid over 30 years in equal monthly payments. You can figure out how much your daily interest will be for the period before the 30 days before the first payment is computed by multiplying $200,000 by the interest rate of 5%, which results in $10,000. This is the amount that you will need to take into account. After that, divide that total by one year to obtain $833, then divide that amount again by one month to get $27.78.

The amount that your daily interest rate comes out to is 27.78 dollars. If you finish the deal on March 15, you will owe 16 days of interest for March, which comes to $444.48 and is due when the deal is closed.

On May 1, the payment on your mortgage will be $1,073.64, as was previously agreed upon. This payment will cover the interest accrued during April: $1,073.64 minus $833.33 = $240.31, which is symbolic of the decrease in principal. After deducting $240.31 from $200,000, the outstanding sum on the principal of your mortgage as of May 1 is $199,759.69.

Conclusion

If you close on the property as soon as the end of the month, as is humanly feasible, you may avoid paying all of that accrued interest out of pocket at closing time. If you close at the beginning of the month, you will have a significant amount of breathing room until that payment is due; nevertheless, you will be required to make a rather sizable interest payment for that month's interest when you close.

Given the significant amount of money you will be required to pay at the closing, you will most likely be relieved to have some buffer time between the day of the closing and the date your first mortgage payment is due. You are not, however, going to be missing any payments. However, it could seem like you are receiving a month's rent or mortgage payment waived; in reality, you are not.

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