Owning a home comes with many additional expenses, from closing costs to furnishings, painting supplies and repairs.
That’s why it’s important to understand the timing of your initial mortgage payment. For many, your first mortgage’s due date is more than 30 days after closing. But knowing your specific due date will help you better budget for all the other costs that arise during a move.
In fact, some lenders even require you to have cash on hand for such surprise expenses: “Beyond the down payment, buyers should also save for any reserves that may be required by the lender,” explains Sunnie Libroker and co-founder of Sala Homes Realty and Development.
It’s much easier to plan ahead when you know what type of cushion you’re working with after moving in. Here’s how to know exactly when your first mortgage payment is due.
When is my first mortgage payment due?
Typically, a borrower’s first mortgage payment is due on the first day of the month after they’ve owned the home for at least 30 days. Add 30 days to your closing date, then move to the first day of the next month. For example, if you close your loan on February 15, your first mortgage payment would be due on April 1.
When it comes to budgeting, keep in mind that window of time when it’s common to make major purchases like furniture and appliances.
Buying a home means you’ll likely have a lot of big expenses in a short period of time. By having a good amount of cash reserves, you will be better prepared no matter when certain bills are due.
Will my first mortgage payment be higher?
In most cases, your first payment after closing will not be more or less than the regular monthly payments you will make in the future. Monthly mortgage payments are calculated based on the loan amount, interest rate, and loan term selected. The payments are then amortized over the term of the loan so that each monthly payment is the same dollar amount.
One thing to note here though is that this only applies to the principal and interest portion of your loan. If you have an escrow account that includes property taxes and home insurance with your regular monthly payment, you might see your mortgage payment change every time your taxes and insurance bills are recalculated. This often happens on an annual basis.
Another circumstance where your initial mortgage payments could be higher is if you have chosen a variable rate mortgage. With this type of mortgage, it is possible that later rate adjustments will cause your interest rate to drop, reducing your mortgage payment.
What factors affect my first mortgage payment?
Here’s what’s typically included in a monthly mortgage payment:
Principal and interest
For most mortgages, your payment will be amortized over the term of the loan, resulting in equal payments each month, with a portion going towards principal and interest. The interest portion of your loan is calculated from the outstanding principal balance of the loan. On a brand new loan, payments will be applied primarily to interest. As you continue to make payments on the loan, the balance will gradually decrease and more will be applied to the principal balance of the loan.
Depending on your loan, you may need to include a prorated portion of property taxes with your monthly mortgage payment. For example, if property taxes are $3,600 per year, you may have to pay $300 per month for that part of your mortgage payment. Although it is not required, some borrowers choose to do it voluntarily for the added convenience of having the lender pay the taxes on their behalf when they become due. Lenders usually adjust this amount when property taxes are reassessed.
As with property taxes, some borrowers may be required to include homeowners insurance with the monthly mortgage payment, while others choose to do so voluntarily for convenience. Since most insurance companies issue annual renewals, this part of your mortgage payment may vary once you receive your renewal premium.
Private Mortgage Insurance (PMI) or Mortgage Insurance (MI)
Unlike home insurance which protects you as the homeowner, private mortgage insurance (PMI) protects the lender in the event that you are unable to continue making payments on your conventional loan. PMI is generally required for loans with a down payment of less than 20% and can be added to your monthly mortgage payment. Mortgage insurance (MI) is required for other types of loans, such as an FHA loan. Depending on the terms of your loan, the PMI may be removed once you have accumulated 20% equity in your home. PM and MI could be terminated by refinancing into a brand new loan.
Best time of the month to take out a mortgage
As long as it lines up with your schedule for things like moving, relocating, or taking advantage of a lower rate, there’s no real benefit to trying to make your closing happen at a certain time of the month. , said Victoria Sy, Licensed Loan Consultant at LoanDepot. “Loans don’t age like wine. Just close it when you can at the earliest. Otherwise, you may incur a lock rate extension fee. Sy also states that you run the risk of loan documents expiring and having to provide updated items to the lender could lead to additional questions and delays while you wait for the new documents to be reviewed.
Here are some examples of what it might look like if you close your loan at the beginning, middle, and end of a month:
Beginning of the month
Closing early in the month means you’ll have almost two months until your first payment is due, since your first mortgage payment is usually due on the first day of the month after you’ve been in the house for at least 30 days. For example, if you close on February 3, your first payment will not be due until April 1.
Your closing date will also affect the amount of money you will need to close the loan. Interest on a mortgage loan is paid in arrears, which means that a payment due in March would cover the previous month’s interest in February. By having a closing date of February 3, daily interest charges for the remaining 26 days of the month will be added to your closing costs. Your first mortgage payment due on the April 1st due date would then cover the accrued interest for the month of March.
In other words, by closing at the beginning of the month, you will have more time before your first mortgage payment is due, but you will have to pay a little more interest at closing.
End of the month
Closing at the end of the month, say February 28, would mean that your first mortgage payment due date would be April 1. That gives you just over 30 days, but you’d lower your initial closing costs because you’d only have to pay for one day of prepaid interest for February 28.
Middle of the month
Finally, if you close mid-month on February 15, you would have about 45 days before your first April 1 mortgage payment is due. And your closing costs would have an additional 14 days of prepaid interest for February 15 through the end of the month.
“The timing of the closing doesn’t really matter during the month since you pay the mortgage from the day of the closing,” advises Li. as the buyer, will be responsible for the charges.”
What happens if I miss my first mortgage payment?
While mortgages usually have a maturity date on the first day of the month, many have a grace period until the 15th day of the month. This means that as long as the lender receives your payment by the 15th, no late fees will apply and the payment will be considered on time. (Be sure to check with your lender, though.)
Payments not made on time may be subject to late fees. Policies may vary between lenders, but if you are more than 30 days late, you could be reported as delinquent to the credit bureaus, which will negatively impact your credit score.
If you realize you’ve missed a payment and are past the grace period on your loan, try to contact your lender as soon as possible and make a payment immediately. In some cases, the lender may waive late fees or agree not to report your default to the credit bureaus if they are aware of your situation. To avoid the possibility of missing a payment, stay on top of your budget, sign up for autopay, and give yourself a recurring monthly reminder to make sure the payment is applied to your account.