Will it be cheaper to close on my property at the end of the month of the beginning of the month?
How many times do we read something that may not be true? Or that you get misinformation, just because someone thinks they know. Can this confuse so many? I could be here all day on this topic.
Today's topic is Interest Per Diem - It's very simple on real estate transactions. It is the interest charged to the borrower daily for that specific month until the loan closes, or on a refinance, until the loan disburses. If you were to close on the 25th of February 2010, then you are paying daily interest until February 28th, 2010, which is 4 days of interest.
What I wanted to point out is that there are some lenders, mortgage companies, that can do what is called an interest credit. This basically negates your interest per diem.
This was an answer from a realtor who claims to have been a loan officer for 15 years. This info is misleading...
Depending on the lender that you are working with on your mortgage transaction, this might not necessarily be true. Here at Infinity Home Mortgage Company, I can offer you an interest credit. It doesn't matter if you are doing a FHA loan, a conventional loan, a VA loan, or a USDA loan. We can offer such a credit up until the 5th day of the month. How does this work?
This example will be based on a loan amount is $200,000 with a interest rate of 5.00%. Your daily interest charge would be $27.40 a day. If you closed on the 25th of February, you would pay interest for 4 days, up until February 28th. This total charge would be about $109.59 to you at closing. And your mortgage payment would be due April 1st.
Now, if you were to close on March 4th, you would be charged no interest at all. We actually credit back the interest to you on the sheet, so that you will not pay anything extra. Keep in mind though, your first mortgage payment would still be due on April 1st.
Conclusion : Many of you have been told that it's best to close at the end of the month, because this would be cheaper. In theory, this is true, but as you can see, it still wouldn't cost you anything extra if you closed by the 5th of the month. Now, some lenders are different and might extend this to the 7th or so. And some may not offer this at all. Why can this help you? If your purchase transaction has been postponed for numerous reasons, this could save you a lot of money. If the lender wouldn't do an 'inerest credit', then you could be charged 27 days of interest on the example that I used above. That could be an additional $739.80 that you would have to bring to your closing.
One thing to keep in mind.... closing your loan at the beginning of the month might not always benefit the seller though. It all depends on the type of mortgage that they have or the restrictions associated with that loan. Example : On FHA loans, you are always 2 months in the arrears and if that seller has an FHA mortgage, it could cost them a lot more money to close on the 5th than it would on the 25th. Just food for thought...
Interest Per Diem Reminder : Just keep in mind that if your loan officer doesn’t bring this up to you, that you should ask them about it. Especially if something were to delay your closing into the next month, it could cost you thousands of dollars more upfront.
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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FOLLOW ME ON FACEBOOK
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- FHA Home Loans - Mortgages -
Experience & Knowledge at its BEST !!!
Follow me on:
______________________________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Jeff - thanks for the information. This question often comes up, and as you point out lenders operate differently. The other issue I have run into which created problems was closing on a Friday, not recording until Monday and the buyer paying extra days of interest. Small thing, on the one hand, but an issue nonetheless.
Jeff
Thanks for the info!
Well, this is interesting!
Truth is over 60 or 90 days there is no difference!
The end of the month is always less out of pocket at the closing table, unless you close in the first week and get a credit, but it all evens out once you start making payments. If you've got the money you pay the toll.
The only sure thing is when refinancing to lower rates close ASAP!
Bill
Jeff... This MUST be the funniest thing I have read in quite some time. Not because of your explanation, which is spot on... but because he is quoted as stating "in the rears". Every time I hear someone say that, I get a tickly in my belly. And no, not because I'm being childish.
If you know what you are talking about then you know its not called "the rears". Someone who has been in the industry should know (even if they have not been a Mortgage guy/gal) its called "arrears". If I were a consumer, I would have moved on already.
Then on top of that, quoting the wrong 'First Payment Due Date'. Another no no.
Sorry, had to comment on the verbiage used. THIS happens often, so I find it amusing.
Interesting Jeff, but in the big scheme of buying a home or condo, isn't this a fairly small expense as opposed to moving in and enjoying your new home?
Good morning Jeff,
A clear concise explanation of the facts. Most buyers do want to close at the end of the moth for many reasons..their lease is up and they need to be out, they come to the table with less money and many sellers are looking to close at the end of the month. Unfortunatley we are seeing loans not ready to close and spill over into the first of the next month, now I see see it may not hurt the buyer as much as I thought.
JEFF... . yes, some lenders operate differently... and yes, just those few days going into Monday could make a difference. thanks
BRIDGET.... . my pleasure and thanks for stopping by..
WILLIAM.... . sure, it could come out the same in the end.... but that would hardly be the case. If you close on the 15th as opposed to the 30th, even though your payment would have the same due date, you are still spending 15 more days in interest, which will cost you more money... ,And it does matter if you have the extra money, or that you want to spend it now... So I guess I am confused on how it all evens out, unless I missed something. thanks
JOHN... . well, I do make mistakes at times.... and it could be his slang for in the arrears... but I do understand about your total point about how some give the wrong terms and or information.. thanks
GABE.... . what might be a small expense to one person might be a large expense to another. Some people are very tight when moving and or, just to have as much money as possible. Just my .02. thanks
DORIE.... . thanks for the compliment. And as you mentioned, there are reasons to why one might need to close at the end of the month... and for those loans spilling over into the next month, what are the biggest reasons that you are seeing? thanks
Thank you for the info- As for the Realtor answering detailed questions about the loan, another example of guiding clients to the most reliable source of information (i.e in this case, their loan company...) and not get involved with "trying to help"...