Why is it better for a buyer to close on a home mortgage at the end of the month?

Question

I know money is saved by virtue of not having to pay certain interest / tax fees, but what are they specifically? What is it called on the itemized closing sheet?

Answer 1

Just your "per diem interest", which is calculated by your interest rate, and loan amount. Lets say you are financing $100,000 @ 6%. You have a daily per diem which is $16.44. If you close on the 1st of the month you have to pay 30 days of per diem, which comes to $439.20. If you close on the 15th, you would have to pay $246.60, if you close on the 29th you would have to pay $49.32. The less days you have to pay for means the less amount of money. Taxes do not change as that is based soley on the loan amount itself, and other standard fees, which are flat rate or based on the loan amount. Hope this helped!

Answer 2

The biggest reason is that the "pre-paid interest" will be less at closing. They typically estimate 45 days of pre-paid interest, figuring that you'll close in the middle of the month, but the closer you get to the end, the less interest has to be pre-paid.

In addition, the real estate representative/mortgage loan officer, wants you to close before months end, because they will get their commission check quicker. So..... it's not always just about YOUR money.

Hope this helps.

Answer 3

The prepaid interest.

If you close on May 2nd you would pay 29 days of interest to the bank at closing. Depending on what your mortgage is --that could be alot. If you Close may 29 you only pay 2 days of interest.

Answer 4

if you close at the end of the month, you will only have a couple of days of prepaid interest to pay. However, that just means you pay more days of rent/mortgage at your previous residence. It really doesn't matter either way.

Answer 5

Your closing costs will be less. When you close you have to pay interest on your loan through the end of the closing month. The later in the month, the less cash you need to bring to closing.