Does The Closing Date

Make A Difference?

 

Every contract of sale indicates an approximate date when the change of ownership is tentatively scheduled to take place. This "on or about closing date" is meant as a target toward which the buyer, the seller and their attorneys will try to be ready to close. As this date approaches, the attorneys, the lender, the seller and the buyer check with each other to verify if everyone is indeed ready. Once everyone indicates they are prepared, a real closing date is scheduled.

 

Most of the time the actual closing date is selected as a date that is convenient to all the parties involved but, as a buyer, you should be aware that there is a subtle difference in the way that things will be paid at the closing if it occurs at the end of a month rather than the beginning.

 

Besides personal convenience issues, the key to determining a date that is financially best for you revolves around how lenders collect interest and when your first mortgage payment will be due.

 

Unlike rent, which is paid in advance of the month for which it is owed, mortgage (principal & interest) payments are paid "in arrears". In other words, they are paid at the end of the month for which the interest has been calculated.

 

The result of this method of calculating payments is that your first mortgage (principal & interest) payment is due at the end of the first FULL month, after you take out the loan. The interest for the partial month in the interim, however, is pro-rated and due, in advance, at the closing.

 

Closing on the last day of a month could be of

benefit to some, while closing on the first day of the new month might be better for others. For properties that are scheduled to close near the beginning or end of a month, it might be worth considering whether advancing the closing into the current month versus delaying it until the next month is financially beneficial to you.

 

Here are the two scenarios:

 

Closing at the beginning of a month.

 

Let's assume you close on March 2nd.

Your first mortgage payment will be due May 1st (which is the money due for the first full month - April - paid "in arrears"- almost two months after closing) By closing early in the month, however, you will have to pre-pay all the interest for the remaining days in March (29 days worth) at the closing table. Depending upon the magnitude of your loan, this could be a significant amount of money that's due immediately.

 

Closing toward the end of a month.

 

Instead, let's assume you close on February 26th.

Your first mortgage payment will be due on April 1st (the money due for the first full month - March - paid "in arrears" - due a little over 1 month after closing) but you will ONLY pre-pay interest for the one or two days remaining in February at the closing.

 

This is really a cash flow consideration. The issue is WHEN certain funds money are going to be due. You won't be "saving" money by moving the closing date. However, if you sense that you are going to be a little tight for cash at the closing, you might feel more comfortable scheduling the closing to occur toward the end of a month rather than the beginning to avoid pre-paying a large amount of interest at closing.