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When is Your First Mortgage Payment Due?

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Question: When is Your First Mortgage Payment Due?
A reader asks: "I really don't understand how mortgage payments work, but my agent tells me that I won't have to make a payment for a long time after I close on my new home. I've worked hard to keep up my credit and don't want to take a chance on messing it up. How do I know when my first mortgage payment is due?"
Answer: To understand how a mortgage works is to understand amortization. That's a long word that basically means your unpaid balance is re-calculated every month and by the end of your mortgage period, your loan will be paid off.

Mortgage Interest is Paid in Arrears

You may have heard that phrase but did not know what it meant. Unlike a rent payment, which is paid in advance, your mortgage payment is paid after the fact.

If you rented a home on June 1, your rent would be due June 1 because it pays for the month of June in advance.

When Do You Make Your First Mortgage Payment?

When your buy a home and obtain a mortgage, the closing agent will collect interest from you. The interest is charged on your closing statement as a closing cost.

  • A mortgage payment consists of two parts: mortgage interest and mortgage 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.

If your closing date, for example, is March 15, you will be charged prorated daily interest from March 15th through March 31st on your closing statement. Your first mortgage payment will be May 1 because that payment will pay the interest for April.

Example of a First Mortgage Payment Calculation

Let's say you are borrowing $200,000 at 5% interest. Your monthly payment will be $1,073.64, payable in equal monthly installments for 30 years.

Your daily interest rate charge (for the time period prior to 30 days before the first payment) is figured by taking $200,000 times the interest rate of 5%. Then divide by 12 months ($833.33), and again by 30 days.

Your daily interest rate is $27.78. If you are closing on March 15, you will owe 16 days of interest or $444.48, which will be charged on your closing statement as a closing cost.

When you make a payment of $1,073.64 on May 1, it will pay the interest for April as follows:

$1,073.64 minus $833.33 interest for April equals $240.31 principal reduction. Subtract $240.31 from $200,000, and your new unpaid balance as of May 1 is now $199,759.69.

It may seem like you're getting a free ride when you close on March 15th and your first mortgage payment begins on May 1, but you really aren't.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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