The day you close, interest will kick in immediately because your lender will want you to begin paying them as soon as funds are distributed. If you aren’t moving in for a week after the date you closed, then you’ll be paying interest on a week that you’re not even living in your new home. This doesn’t really make much sense, so choose a date to close on that’s more in line with when you want to move.
Although you have to begin paying interest the day you close, you can pay it in different ways depending on when you close. The first payment on your mortgage will have to be paid on the first day of the month – this is how every mortgage is. It will also include the interest for a full month. Taking this into account along with the fact that you can close on any day of the month, there will be an interest adjustment based on your closing date known as per diem interest. Let’s say you close on March 29th. This means that you’ll pay interest at closing for March 30th, March 31st and April 1st. Your first mortgage payment will be due on May 1st, which means you’ll also pay interest for the month of April.
Now, if you close in the first week of March instead of the last week of March, such as on March 3rd, you’ll be given the option of paying interest at closing for 29 days and then not having to make your first payment until May 1st. You’ll end up paying more at closing, but your first mortgage payment will be delayed by a month. Another option would be to receive an interest credit at closing forMarch 1st to March 3rd, which would lower the cash you would be required to pay at closing, but you’ll have to pay a full month of interest on April 1st.
It’s a little bit complicated, but you’ll realize that you don’t really save money or lose money based on your closing date – not in the long run. Instead, it affects your current cash flow. If your present financial situation requires a certain cash flow, then juggle these options to see when the best closing date will be for you.
Refinancing your mortgage
When it comes to refinancing, the date you close matters much more. You’ll want to close your refinancing at the end of the month and avoid doing so at the beginning of the month. This is because if you refinance on say, March 3rd, you’ll end up being charged interest by the lender of your original mortgage as well as the lender of your refinanced mortgage. And if you are refinancing out of an FHA, then you’ll be required to pay for a full month of interest no matter when you close, which means closing at the end of the month will save you the most money.
To ensure you’re maximizing your mortgage savings at the right time, fill out an application to speak to a loan specialist today!