When is My First Mortgage Payment Due?

November 18, 2019 By , ,

Becoming a homeowner is more than just picking a house and signing a few documents on your Closing Day. You need to know exactly when your mortgage payments are due and how much to pay.

Mortgage Payment Breakdown

Once you buy the home, you will make regular monthly payments toward the loan until you pay it off. The payments will include several different costs, such as: 

Principal

The principal is the part of the loan’s balance still owed to the lender, or the loan amount borrowed from the lender, excluding interest. Essentially, your original loan, minus the payments you’ve made against that balance. You may have the opportunity to refinance your loan at a lower rate later on down the road, or you may even pay off the loan early

Interest

Interest on a loan is a fee that a lender charges for allowing you to borrow their money for a specific length of time. Your lender will determine your interest rate from a variety of factors, including:

  • Credit score
  • Property type and location
  • Loan term
  • Interest rate type (fixed or adjustable)
  • Home price and loan amount
  • Down payment
  • Type of loan program

Homeowners Insurance 

This form of property insurance covers losses and damages to an individual’s house and to assets in the home. Thankfully, homeowner’s insurance also provides liability coverage against accidents in the home or on the property.

Mortgage Insurance

Mortgage Insurance (MI) is a policy that lowers the risk of making a loan to applicants who are putting down less than 20% of the purchase price. MI is required on conventional loans with a down payment less than 20% and is also typically required on FHA and USDA* loans.

When Should I Start Paying on My Mortgage?

When it comes to buying a home, it’s not hard to become overwhelmed by the new terms, important documents, and significant days to remember. During the homebuying process, it’s likely you’ll hear that the first mortgage payment isn’t due for a significant amount of time after closing. For those who are looking for a clearer timeline, we’re here to help.

Mortgage Interest is Paid in Arrears

Typically, your first payment is due at the beginning of the first full month after closing, and the interest on the loan will accrue on your principal balance.

Because mortgage interest is paid after it’s accumulated, you would pay for the past month’s interest, not the current month. For example, a December 1st payment would include the interest for the entire month of November.

Principal is Paid in Advance

As we mentioned above, there are many costs that are usually lumped into your mortgage payment, but the main two are interest and principal.

The principal balance is the part of the loan’s balance still owed to the lender, or the loan amount borrowed from the lender, excluding interest. This portion of your mortgage is paid going forward, rather than for the previous month like the interest. Paying toward the principal reduces the balance you owe as of the date that it’s due and is paid.

TIP: Paying a little off of the principal balance each month has the potential to shave years off the life of your loan.

How the Process Works

In most cases, your closing agent will collect interest from you for up to 30 days before the first full month when you buy a home and obtain your mortgage. (This interest will be listed on your closing statement, and it’s charged as a closing cost.)

So, let’s look at an example. If you close on your home on March 15, you’ll be charged a prorated daily interest from March 15 to March 31. Now, remember the interest collected at closing? This will cover the interest due on your mortgage for the last 16 days of March. Then, your first mortgage payment will be on May 1 and will include the interest from April.

Take a Closer Look

The journey to homeownership looks different for each homebuyer. Although this is the standard process, your situation is unique, so you will probably have additional questions to ask. This is where we come in!

Talk to an experienced Mortgage Advisor today to learn more about what your mortgage could look like.

*Some state and county maximum loan amount restrictions may apply.
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