Navigating Your First Mortgage Payment:
Know When It's Due

Part 1: When Is The Due Date Of Your First Mortgage Payment After Closing?

The first mortgage payment is typically due more than one full month after the closing date. This occurs because mortgage interest is paid in arrears, meaning you pay the interest for a given month at the end of that month.

For instance, let's say you close on your home on March 15th. Your first mortgage payment would not be due on April 1st, but rather on May 1st.

This is because the interest accrued between March 15th and March 31st would be included in your first mortgage payment on May 1st. Consequently, you have over a month between closing and the due date of your first mortgage payment.

Part 2: How Much Is Your First Mortgage Payment?

Your first mortgage payment after closing is usually the same amount as your other mortgage payments spread across the loan term. The only exception is if your mortgage is an adjustable-rate or variable-rate mortgage.

Borrowers With A Fixed-rate Mortgage

A fixed-rate mortgage is a home loan that has a fixed interest rate throughout the life of the loan. This means that whatever the rate is at the beginning remains the same until the loan term lapses. Because of this, your periodic mortgage payments on each due date will be the same throughout that loan term.

Suppose you have a 30-year fixed-rate mortgage for $200,000 at a 3% interest rate. Your monthly principal and interest payment would be approximately $843.

In this case, your first mortgage payment would include $500 in interest (covering the interest accrued between the closing date and the end of the first month) and $343 in principal.

Borrowers With A Adjustable-rate Mortgage

A variable-rate mortgage is a home loan that has an adjustable interest rate which may fluctuate at any time over the course of the loan. If you have such a loan, you will be dealt an initial interest rate which will be added to the principal when calculating your first mortgage payment.

However, as time goes on, that interest rate may increase or decrease, depending on the market fluctuations.

Let's say you have a 5/1 adjustable-rate mortgage (ARM) for $200,000 with an initial interest rate of 2.5% for the first five years. Your initial monthly principal and interest payment would be approximately $790.

After the first five years, the interest rate may change based on market conditions and the terms of your loan. This change will subsequently affect your mortgage payment.

Part 3: Factors That May Influence Your First Mortgage Payment

Various factors can influence the amount and due date of your first mortgage payment. Understanding these factors can help you better plan your finances and make informed decisions about your mortgage. In this section, we will delve into the factors that may affect your first mortgage payment and provide insights into managing them effectively.

Your Closing Date

The closing date of your mortgage has a direct impact on when your first mortgage payment is due and how much interest will be included in that payment. Closing earlier in the month results in a longer period before your first payment is due, but the interest accrued during that time will be higher.

The general rule of the mortgage payment is that your first payment should be done within 60 days after closing, on the first day of the next month. This means that your first payment will always fall on the first day of whichever month is next.

For instance, if you close the home early in April, say 1st, your first mortgage payment will be the first day of the next month, May 1st. In this case, your first mortgage payment comes early because 60 days after April 1st falls on the 31st of May. You cannot choose June 1st because it's already above 60 days, meaning May 1st is your best bet.

Likewise, if you close your home late in April, say the 14th, your first mortgage payment may be the first day of the next month, June 1st. In this case, your first mortgage may come later because 60 days after April 14th is June 13.

This means you can pick May 1st or June 1st to be your first mortgage payment date. However, since April 14th to May 1st is short, you may not have the capability to make the first payment yet. That makes June 1st the likely due date for your first mortgage payment.

Early Mortgage Payment

Paying your mortgage early can help you to reduce the total interest amount and initial loan term offered by the lender. Since interest is charged on the outstanding principal, adding extra to your normal mortgage payment will reduce your outstanding principal. So, by the time the interest is calculated on the principal, your mortgage payment also reduces.

If you make an extra payment of $1,000 towards your mortgage principal in the first month, this payment will reduce your outstanding balance and, consequently, the interest that accrues on your loan. Over time, this strategy can help you save thousands of dollars in interest and pay off your mortgage faster.

So, how does this affect your first payment? Applying this principle to your first mortgage payment means the amount payable will be higher than normal. For instance, if your first payment is supposed to be $1,000, applying the early payment principle requires you to add extra, say $1000 more (could be higher or lower depending on your capability).

Type Of Mortgage And Interest Rate

The type of mortgage loan and the interest rate you secure can also affect your first mortgage payment. Fixed-rate mortgages offer predictable monthly payments, whereas adjustable-rate mortgages may have fluctuating payments due to changes in interest rates.

Extra Payments- Mortgage Insurance and Escrow Accounts

Some lenders, after closing, set up an escrow account which will contain cash used to cover the cost of your real estate taxes, insurance premium, private mortgage insurance, and homeowners association fees. Such lenders may include all those fees in your monthly payment so they can deposit them into the escrow account.

If your lender falls in the category above, then your first mortgage payment, as well as the subsequent ones will be higher since the cash to cover the aforementioned monthly expenses is added.

Prepaid Interest

At closing, you may be required to pay prepaid interest, which covers the interest that accrues between the closing date and the end of the month. The amount of prepaid interest depends on the number of days remaining in the month and your loan's interest rate.

Part 4: How Do You Make Your First Mortgage Payment?

There are several methods available for making your first mortgage payment, and it is important to choose the one that works best for you. Some common payment options include:

Automatic Payment

One of the common ways you can deposit your first mortgage payment is through an automatic payment system. You can easily arrange a standing order which automatically sends your payment to your lender's account on or before due dates.

This payment method is recommended because it ensures that your payments are timely, ultimately helping you avoid late payment penalties.

Online Payment

Most lenders offer online payment options through their websites or mobile apps. This method allows you to make payments at your convenience and often provides access to your account information, payment history, and loan balance.

Payment via Mail

You can also mail a check or money order to your lender each month. Keep in mind that mailing your payment may take several days to reach your lender, so it's important to send it well before the due date.

Payment By Phone

Some lenders accept payments by phone, enabling you to make your mortgage payment using a credit card, debit card, or electronic check.

Regardless of the method you choose, it's important to make your payments on time to maintain a good credit standing and avoid penalties. If you want to split payments or prepay your mortgage with extra payments, ask your lender if they permit these options and how the payments will be applied.

Part 5: What Are The Consequences Of A Missed Payment?

Most lenders consider a mortgage payment late if it is not received by the due date. However, many also offer a grace period, typically lasting 15 days, during which you can still make your payment without incurring penalties.

After the grace period allowed by your lender, you may face a late payment penalty, which is usually a small fee. Some lenders may proceed to report your missed payment to the credit bureaus as delinquent while others may wait for a longer period, usually 30 days before reporting your account.

Note that after the delinquent gets reported to the credit bureaus, your credit score and overall history will be affected negatively. Such a record may remain on your credit report for up to 7 years.

Situation 1: Making A Missed Payment During The Grace Period

After missing a mortgage payment, it is advisable that you redeem yourself within your grace period. The reason is, if you make your missed payment within the grace period allowed by your lender, they will most likely not report the late payment to the credit bureaus. Your credit score and history will also not be negatively impacted that way.

Example

Suppose your mortgage payment is due on the 1st of the month, and your lender offers a 15-day grace period. If you make the payment on the 10th, you should not be charged a late fee, and your credit score should remain unaffected.

Situation 2: Making A Missed Payment After The Grace Period

Making a missed payment after the grace period set by your lender has two major implications.

The first is that your lender charges a late fee, which increases the mortgage amount payable. Secondly, your lender may report your missed as delinquent to the credit bureaus. This will most likely harm your credit score and history significantly, which may impact your ability to secure loans in the future.

Example

If your mortgage payment gets due on the 1st of November and your lender allows a 15 days grace period, you are expected to make payments before the 15 days lapses.

However, if you miss it again, your lender charges a 5% late payment fee, then reports your account to the credit bureaus. Consequently, your current credit score may be lower by as much as 100 points. For instance, if you have a 620 credit score, it may drop to 520 due to the late payment report.

Proven Ways To Avoid Missing Your Mortgage Payments

• Use Auto-pay systems: Automate your mortgage payments to ensure they are always made on time, helping you avoid late fees and damage to your credit.

• Include Your Mortgage Payments In Your Monthly Budget: Establish a monthly budget that accounts for your mortgage payment and other expenses, ensuring you have enough funds to cover your financial obligations.

• Set Aside Emergency Funds: Having an emergency fund can provide a financial safety net in case of unexpected expenses, helping you avoid missed mortgage payments.

• Discuss Potential Missed Payments With Your Lender: If you anticipate difficulty making your mortgage payment, contact your lender as soon as possible. They may be able to offer solutions such as a temporary payment reduction or loan modification.

Part 6: The Cost of Delaying Your First Mortgage Payment

Accrued interest

When you delay your first mortgage payment, interest continues to accrue on the loan. As a result, the total amount of interest paid over the life of the loan will likely increase, potentially costing you thousands of dollars more in the long run.

Example

If you borrow a fixed-rate mortgage of $200,000 loan with 4% interest and a 30-year loan term but missed your first payment, here's what happens;

Your debt accrues additional interest for that missed month and could potentially increase your total interest payments by several hundred dollars over the loan term.

Longer Loan Term

Delaying your first mortgage payment may extend your loan term, meaning you'll be making payments for a more extended period than initially planned. This can impact your financial goals and may delay your ability to pay off the mortgage sooner or save for other financial objectives.

Example

If your loan has a 30-year repayment term and you delay your first payment by two months, your loan term may stretch to 30 years and two months. While this may not seem like a big deal, your long-term financial planning and budget may suffer.

May Affect Your Credit Score Negatively

While it's unlikely that delaying your first mortgage payment by a month or two will directly impact your credit score, consistently delaying payments or making late payments can harm your credit.

Late payments may be reported to credit bureaus, lowering your credit score and affecting your ability to secure future loans or lines of credit.

Part 7: Tips To Save Some Money On Your Mortgage Overtime

Pay off your loan early

Paying off your loans early can help you save a lot of money over time. When you add extra cash to your normal mortgage payments, you can reduce your total outstanding debt and the interest charged on it. This can also help you to shorten your loan term.

Example

Suppose you have a 30-year, fixed-rate mortgage for $200,000 with a 4% interest rate. If you make an extra payment of $100 per month toward the principal, you could potentially pay off your mortgage nearly five years earlier and save around $30,000 in interest payments.

Apply for a Refinance Mortgage

Refinancing your mortgage loan involves replacing your existing loan with a new one, often at a lower interest rate or with better terms. By refinancing, you can reduce your monthly payments, shorten your loan term, or both, ultimately saving money over the life of the loan.

Example

If you have a 30-year mortgage for $200,000 with a 5% interest rate and refinance to a new loan with a 3.5% interest rate, you could save $63,200 in interest payments over the life of the loan. To illustrate, let's look at a more detailed breakdown:

• With a 5% interest rate, your initial monthly payment would be approximately $1,073, and the total interest paid over the 30-year term would amount to roughly $186,512.

• By refinancing to a 3.5% interest rate, your new monthly payment would be around $898, and the total interest paid over the 30-year term would be approximately $123,312.

In this scenario, refinancing your mortgage to a lower interest rate would save you about $63,200 in interest payments over the life of the loan, while also reducing your monthly payment by about $175.

However, it's essential to consider factors such as closing costs and the time remaining on your current mortgage term when deciding whether refinancing is the right option for you.

Keep Your Home In Good Shape

Staying on top of everyday maintenance of your home can help you save money in two ways. One, addressing the minor issues, like repairs promptly can help prevent escalating the problem, thereby saving you some money.

Secondly, while paying the mortgage of your home, you may decide to sell it and purchase another house. If your house is well maintained, you can sell it for a price higher than the total amount you spent on purchasing it. This means after you may refinance the mortgage to cash-out on the excess home equity.

Examples

Let’s say your mortgage was a $100,000 20-year loan and now you have paid $50,000 out of your debt after 5 years. During your 5 year stay in the home, you carried out fixes promptly and kept the house in a stellar condition by doing the following;

• Fix leaks promptly to prevent issues. like water damage and molds. This ultimately saved you from future costly repairs due to those leaks.

• Clean the gutters and downsprouts regularly to avoid clogging, which may cause leaks and water damage to your homes,foundation, walls, and sliding. This also saved you the cost of greater damages.

• Insulate your home to save energy cost and prevent your HVAC system from wearing out quickly, which may have called for replacement later.

Now you have some financial issues to cover but there’s no cash reserve to take care of them. You then decide to refinance the mortgage to get some cash. Upon valuation, your home is now worth $140,0000, which means it increased 40% in value.

Ultimately, you were able to cash out on your home’s higher value to get the extra cash needed for your financial issues.

Recast Your Mortgage

If you receive a large sum of money, such as an inheritance or bonus, you can consider recasting your mortgage.

Recasting involves making a substantial lump-sum payment toward your principal balance and then recalculating your monthly payments based on the reduced balance. This strategy can help you lower your monthly payments without extending your loan term.

Example

Assume you have a 30-year mortgage with a $200,000 balance and a 4% interest rate. If you make a lump-sum payment of $50,000 toward the principal, your lender can recast your mortgage, recalculating your monthly payments based on the new $150,000 balance.

This would result in lower monthly payments, allowing you to save money without extending the loan term.

FAQs

Is It Possible To Choose A Preferred Mortgage Payment Due Date?

Most mortgage lenders, especially traditional lenders, like banks and credit unions prefer that their borrowers make their mortgage payment on the first day of the month. Therefore, it may be tough to get an offer that allows you to pick a preferred due date.

However, if you are facing financial challenges and need to adjust the timing of your mortgage payment temporarily, it's essential to communicate with your lender.

They may be able to offer temporary solutions or accommodations to help you manage your mortgage payments better. Keep in mind that these arrangements will typically be on a case-by-case basis, and there is no guarantee that your lender will grant a change in the due date.

What Is The Best Closing Date?

Choosing the best closing date depends on your individual circumstances and preferences.

Most home buyers choose the end of the month to enjoy a lower closing cost. This happens because the upfront interest and tax bills will be calculated from the closing date to the end of that month.

So, if you close the home late, say May 28, the upfront interest and tax bill will be calculated from May 28 to May 31st. The result will be a lower closing cost, of course.

Buyers may also prefer their closing date to be earlier so that they can put a long distance between their closing date and their first mortgage payment. However, they will be paying a full interest and tax charge as part of their closing cost.

For instance, if your closing date is May 1st, your upfront interest and tax charges will be billed from May 1 to May 31. That's undoubtedly a higher cost compared to a borrower who closes late.

Regardless of the closing date you choose, it's essential to consider your financial situation and discuss your options with your lender and real estate agent.

What happens if my bank rejects the mortgage payment?

If your bank rejects your mortgage payment, it is crucial to address the issue immediately. Reasons for rejection could include insufficient funds, an expired or invalid account, or a bank error.

Contact your bank to determine the cause of the rejection and resolve the problem. Once resolved, make your mortgage payment as soon as possible to avoid late fees, penalties, or negative impacts on your credit. Inform your lender about the situation and keep them updated on your progress.

Will My First Mortgage Payment Be Included In My Closing Cost?

No, your closing cost does not include your first monthly payment. Closing costs, in a buyer's case, simply include all the expenses that they may incur when making a home purchase.

This may include an appraisal, insurance coverage, loan application, attorney fees, escrow fee, and more. Your first mortgage payment cannot be added to these items because it is not an expense incurred during a purchase.

However, when you close on your home, you may need to pay prepaid interest, which covers the interest that accrues from your closing date until the end of the month. This prepaid interest is a one-time payment and is separate from your regular mortgage payment.

What Do I Do When I'm Unable To Make A Payment?

If you're unable to make your mortgage payment, it's essential to contact your lender as soon as possible. Being proactive and transparent about your situation can help you find a solution before the problem escalates. Y

our lender may be able to offer you options such as a loan modification, forbearance, or repayment plan to help you manage your payments and avoid defaulting on your mortgage.

Additionally, consider seeking assistance from a HUD-approved housing counselor or a financial advisor to explore alternative solutions and develop a plan for managing your financial challenges.