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When's the Best Time to Close on a Mortgage?

Closing is the final step in the home-buying process, and once you’ve signed your name on all of the required documents, your dream property will finally be yours. If you’ve been searching for a home for months, you may be eager to wrap up the closing as quickly as possible. But the date that you choose to close on your mortgage can affect your closing costs, cash flow and taxes in more ways than one. A financial advisor can help you understand how all aspects of buying a residence affects your financial plans and goals.

How the Closing Date Affects Your First Payment

Generally, a homeowner’s first mortgage payment is due the first day of the month following a 30-day period after the close. If you’re buying a home and you close on Aug. 30, for example, your first payment would be due on Oct. 1. That means you basically get a month to live in the home mortgage-free. Note, too, that closing near the end of the month means your first mortgage payment comes sooner than if you had close early in the month.

On the other hand, let’s say you close on a mortgage early in the month, say on the fifth day instead of the 30th. Your first payment wouldn’t be due until one full month has gone by. So if you closed on Aug. 5, you wouldn’t be responsible for paying until the first day of October. If you’re shelling out a lot of money to pay for closing costs, having some extra wiggle room before it’s time to start making mortgage payments can be helpful.

For someone who’s leaving behind a rental unit, scheduling the closing at the end of the month might make sense if you have to give a 30-day notice before moving out. That way, you don’t have to pay rent for a partial month while you move into your new home. On the other hand, scheduling the closing for an earlier date can give you more time before your mortgage payment comes due.

Closing Dates and Interest Payments

When's the Best Time to Close on a Mortgage?

Besides determining when your first payment is due, your closing date also affects the amount of interest that gets tacked onto the loan. When you close on a mortgage, you’re required to pay for any interest that accrues between the closing date and the end of the month.

If you’re closing on the last day of the month, you’re not going to get hit with a big interest bill. But if you close near the beginning of the month, you’ll have to pay more in interest.

Compromise by Closing in the Middle of the Month

When it comes to choosing a closing date, it’s really a choice between saving on interest and having more time before your mortgage payment comes due. This decision can have a somewhat large affect on your situation, so decide carefully.

If you don’t know what to do, you can always make your closing date fall in the middle of the month. That way, you can avoid spending a ton of money on interest and benefit from having a month and a half left before the mortgage payments kick in.

Bottom Line

When it comes to picking a closing date, there is no one-size-fits-all approach. An end-of-the-month closing keeps a lid on the amount of interest you’ll have to pay at closing but also means means your first full monthly mortgage payment comes sooner. An early-in-the-month closing flips that script; interest due at closing is higher but your first full monthly payment comes later. Before you pick a closing date make sure you understand how that date affects closing costs, cash flow and taxes.

Once you’ve selected your optimal closing date, it’s a good idea to make sure you’re prepared to head to the closing table. Your lender is required to issue a closing disclosure at least three business days before the closing date. Making last minute changes could delay the closing. If the closing date gets pushed back, you could miss out on the benefits you were trying to gain from closing on the date you selected.

Tips on Mortgages

When's the Best Time to Close on a Mortgage?

  • Consider working with a financial advisor as you assess your mortgage choices.

    Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use our free mortgage calculator to estimate your monthly mortgage payment with taxes, fees and insurance.
  • SmartAsset’s mortgage comparison tool enables you to compare mortgage rates from top lenders and find the one that best suits your needs.

Photo credit: ©iStock.com/AlexRaths, ©iStock.com/Johnny Greig, ©iStock.com/gradyreese

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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