When is the first mortgage payment due?
Don’t let the word amortization scare you. Understanding amortization is the key to understanding how a mortgage works. Amortization is the term that basically means your unpaid balance is re-calculated every month based on payments to the principal and interest. By the end of your mortgage period, usually 30 years, your loan is paid off.
Mortgage Interest Is Paid in Arrears
Arrears means money owed from the past. Mortgage interest is paid after it has accumulated, not before. So, your first mortgage payment is paid at the beginning of the first full month after closing and every month thereafter.
Conversely, if you rent a home on June 1, for example, your rent would be due June 1 because it pays for the month of June in advance. But mortgage interest is paid in arrears, so a June 1 mortgage payment pays the interest for the entire month of May.
When Do You Make Your First Mortgage Payment?
When you buy a home and obtain a mortgage, the closing agent will collect interest from you up to the date of 30 days before the first full month.
- A mortgage payment consists of two parts: interest and 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.
Let’s say your closing date is March 15.
You will be charged prorated daily interest from March 15 through March 31 on your closing statement. The interest collected at closing will cover the interest due on your mortgage for those last 16 days in March. Then, your first mortgage payment will be due on May 1, and that payment will pay the interest for April.
But while it might seem like you’re getting a month free of a housing payment when you close on March 15, you really aren’t.
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