When Do Mortgage Payments Start After Closing?
Unravel the timing of your first mortgage payment after closing. Gain clarity on the initial financial process and what to expect for your home loan.
Understanding the timing of your first mortgage payment after closing is a common question for new homeowners. While the process may seem complex, it follows a standard structure. This article clarifies when and how the initial mortgage payment typically begins.
The First Payment Timeline
Mortgage payments operate on an “interest in arrears” system, meaning the payment covers interest accrued during the previous month. This creates a delay between your closing date and your first mortgage payment due date.
For example, if you close in January, your first mortgage payment is typically due March 1st. This payment covers interest accumulated during February. While this provides a brief period without a payment immediately after closing, it is not a payment-free period, as interest begins accruing from your closing date.
Impact of Closing Date and Pre-Paid Interest
Your closing date directly influences the amount of pre-paid interest you pay at closing and the timing of your first monthly payment. “Per diem interest” refers to the daily interest charged from your closing date through the end of that month, collected at closing.
Paying per diem interest ensures your first monthly payment covers a full month of interest. For example, if you close on January 15th, you pay per diem interest for January 15th through January 31st at closing. Your first payment, due March 1st, then covers February’s interest. Closing earlier means more per diem interest but a longer gap before your first payment. Conversely, closing later reduces per diem interest but shortens the time until your first payment.
Understanding Your Monthly Payment Components
A typical monthly mortgage payment is often referred to as PITI: Principal, Interest, Taxes, and Insurance. Each component plays a distinct role in your overall housing cost.
The principal portion of your payment reduces the loan amount, directly paying down the balance. Interest is the cost of borrowing, calculated as a percentage of your remaining loan balance. In the initial years of a mortgage, a larger portion of your payment typically goes towards interest, with more going to principal over time as the loan balance decreases.
Property taxes and homeowner’s insurance (T and I) are often managed through an escrow account. Your lender establishes this account to collect a portion of these expenses with your monthly mortgage payment. The lender uses these escrowed funds to pay your property tax bills and insurance premiums when they become due. Funds for the initial escrow setup are usually collected at closing.
Making Your Initial Payment and Beyond
After closing, identify your loan servicer, the company responsible for collecting your monthly mortgage payments. This servicer may differ from the lender who originated your loan. You can find their information on your closing documents, a welcome packet, or your first mortgage statement.
Common methods for making mortgage payments include online portals, mailing a check, or phone payments. Many servicers offer automatic payments directly from your bank account, which helps ensure timely payments. You will receive monthly statements from your servicer detailing your payment breakdown and remaining loan balance.