As you get closer and closer to buying a home, there are many different considerations to keep in mind. You want to close quickly to give the seller more confidence, while also trying to understand your first mortgage payment, what you’ll be paying for, and how a mortgage payment schedule works.
As a buyer, it’s often difficult to balance it all and still ensure that you’re saving money where you can. A common question that comes up during the mortgage process is when the first mortgage payment will be due and any tips that are good to know before closing on a house. For this article, we’ll walk you through good advice to keep in mind for your mortgage payment and help you understand when your first mortgage payment will be due and what you’ll be paying for.
I’m about to close on a house…what do I need to know?
So before we dive into mortgage payment schedules, let’s take a step back and look at the closing process. You won’t be paying for your mortgage when you close. At that specific point, the only payments you make are the down payment, closing cost, and prepay interest.
The prepaid interest payment is a key thing to note at this point because that’s an opportunity to save. The interest payments for your mortgage start accruing the day you close your house. After that, the interest will continue to add up until the loan is paid in full.
The daily interest you pay at the time of closing is calculated by multiplying how many days are left in the month when you close. So if you close on June 2nd, you’ll be prepaying the interest from June 2nd to June 30th. However, if you were to close on June 24th, you’d only be paying interest from June 24th to June 30th.
That’s why you should try to close near the end of the month to reduce the prepaid interest you’d have to pay. Doing so gives you a bit more cash that you could potentially put aside for your first mortgage payment.
When will my first mortgage payment be due?
After the sale closes and you’re officially a homeowner, the next step is understanding your mortgage payment schedule and when your first mortgage payment is due.
Generally, your first mortgage payment will be due on the first day of the second month from when your mortgage closed. However, instead of paying the month ahead, you’re actually paying the month before with your first mortgage payment.
You can find the date for your first payment in your closing documents; it’ll be included in a letter called your “First Payment Letter,” and you’ll find details on how to make the payment.
From then on, your mortgage payment schedule will have payments being due on the first of the month.
What will my first mortgage payment include?
When making payments towards your home loan, it’s crucial to understand what exactly it is that you’re paying for.
Your first mortgage payment will consist of:
- Insurance (if you are liable to pay it)
An important thing to remember is that mortgage interest is in paid arrears, so you pay after it accrues rather than before. You will have prepaid the interest from when you closed, so your mortgage payment will include full interest for the month after closing.
Taking the example for June 24th, you will have prepaid interest till June 30th. Your first mortgage payment will be in September and will include the interest accrued in August, plus principal, taxes, and insurance.
The principal portion (i.e., the borrowed amount) of mortgage payments is paid in advance for the following month. So following the same example, your first mortgage payment in September will pay for the principal amount in October. The more you can pay towards the principal amount, the lower your interest payments will be moving forward.
Property taxes will vary based on the assessed value of your home and will vary. Insurance premiums for the first year of homeowners insurance are usually included in closing costs but could be included in your first mortgage payment depending on the conditions of your home loan.
Mortgage rates and payment schedules can be confusing, but we have plenty of resources to help you, including a mortgage payment calculator and other tools. To learn more about a home loan or mortgage, contact us today for more information about the Schaff Group and our personalized mortgage solutions we offer.