Real Estate & Mortgage Insights

Why close at the end of the Month?

Mostly, this has to do with lowering your out of pocket costs by minimizing the amount of "prepaid interest" you pay on your mortgage at closing.

Interest on your mortgage begins running from the date your transaction closes, but most loans are due on the first day of the month. So when you close, you "pre-pay" the interest between the closing date and the end of the month.

For example, if you close on the 29th of October, you prepay one day of interest to cover the rest of October's interest. Your first payment will be due December 1st, when you will actually be paying November's interest.

As a different example, if you close on the 6th of November, you prepay 24 days of interest. This means you have to bring in more cash to close your real estate purchase than would have been required by closing just eight days earlier.

However, the benefits of a late-in-the-month closing are only short-term.

With the October 29 closing, your first payment due-date will be December 1. With the November 6 closing, your first payment is not due until January 1.

It just takes less cash "out of pocket" to close near the end of the month. That is the major benefit.

� August 2003 by RealEstate ABC

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