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On
July 1, you pay your rent for the month
of July in advance.
On July 1, when you own your home and
make your house payment, your payment
pays for the preceding month of June!
The bank can't charge you for the use
of their money until you've used it!
Your first house payment is due a minimum
of thirty days after you close, due
and payable on the first day of that
month. As an example, if you close on
June 30th, your first house payment
is due on August 1st. Your August 1st
payment pays all of the interest for
the month of July. You will be charged
one day of interest for the month of
June in advance at closing. This is
called prepaid interest. If the interest
part of your payment is $900.00 per
month, one day of interest would be
$30.00.
It is important to realize prepaid interest
can be a significant number that you
may unintentionally put yourself in
a position to pay without realizing
it! You could be set to close on Friday,
June 30th. There could be a problem
getting the paperwork together that
afternoon and your closing could be
postponed until the following Monday,
which is July 3rd. When you return to
the attorney's office they tell you
that your closing costs have increased
by about $870.00 due to your increased
prepaid items. You will need to prepay
your interest from July 3rd through
July 31st in advance. Your first house
payment will be due and payable on September
1st.
You're not losing any money or facing
any additional costs, but if you are
tight on funds, a situation like this
can really ruin your day!
Reduce your points and/or origination
fee by slightly increasing your interest
rate. This one step can save you hundreds
and hundreds of dollars!
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