WHEN IS THE BEST TIME TO CLOSE?

Here is a good Press Release from the
Minnesota Association of REALTORS®


WHEN IS THE BEST TIME TO CLOSE?

The settlement of a home sale often is scheduled at the end of the month. Many buyers insist on this target, because they feel they are saving money by cutting back the number of ownership days for which they must make interest payments on their mortgage financing.

But, the Minnesota Association of REALTORS® reminds buyers that whether a closing occurs at the first, middle or end of the month has no bearing on the amount of interest owed. Generally, a lender collects interest, starting with closing, for as long as the buyer has a mortgage on the home.

“As the month draws to a close, the workload builds for real estate professionals and mortgage lenders as all parties under pressure by home buyers trying to close on time,” Duane Sauke, president of the Minnesota Association of REALTORS® says.

“The money saved by closing at the end of the month are funds included in the prepaids, part of the expenses paid up front by the buyer at settlement. Except in states where regulations prohibit the practice, prepaids include interest that accrues on the mortgage from the closing day to the first day of the next month,” he adds.

Mortgage interest is always collected in arrears to cover the previous month’s ownership. The first monthly mortgage payment made after closing applies to the first full month of ownership that comes between the settlement date and the date the first payment is due.

For example, if a closing occurs on January 31, the borrower pays prepaid interest for one day’s ownership in that month. If loan payments are collected once a month, the first mortgage payment likely will be due March 1. However, if the borrower’s closing is on February 1, he will pay prepaid interest for 29 days of ownership for that month. But, the first mortgage payment is not due until April 1. During virtually the same amount of time - from Jan. 1-April 1, or Feb. 1-April 1 - the borrower pays close to the same amount of money.