I am selling my home on the 8th of the month, should I make my mortgage payment due on the 1st?

Short Answer:

It depends. Many mortgages have a grace period between when the payment is due and when it's late. It is important for you to review the grace period for your mortgage. However, if closing is delayed, not making a mortgage payment by the end of the grace period will result in a late payment. Making a last mortgage payment will reduce the interest and principal owed on the payoff, and any overage will be refunded to you shortly after the payoff.

Longer Answer:

When selling your home, timing your last mortgage payments can be tricky, especially when your closing date is close to your payment due date. If you're scheduled to close on the 8th of the month and your mortgage payment is due on the 1st, you might wonder whether you should make that payment.

Check with Your Lender

First and foremost, consult with your mortgage lender to learn if your mortgage has a grace period. The grace period is the period of time after the due date of your mortgage that your mortgage is considered not late. In addition, some lenders may have specific requirements or recommendations for situations like this.

Mortgage Interest

Every mortgage payment includes a portion that goes to pay interest. However, the interest that you are paying is from the previous month, not the month coming up. For example, if you have a mortgage payment due in June, it will pay the interest due from May. Therefore, when you pay off a mortgage, you will always have to pay the interest due until the loan is paid off. Making the payment due on the first of the month before closing will reduce the interest owed on the payoff of your mortgage, as it pays off the previous month's interest and only leaves this month's interest to be collected.

Understand the Closing Process

During the closing process, the buyer's funds will be used to pay off your mortgage. Any outstanding balance, including the interest accrued up to the closing date, will be settled. The attorney/title company may not be able to wire the funds to your mortgage lender on the date of closing. The funds paying off your mortgage may arrive at your current lender shortly after closing. Depending upon the day of the week of closing (ie Friday), the title company may not be able to wire the funds until Monday. If your current lender receives the payoff after the grace period, you will be hit with a late payment for failure to make your mortgage payment. Therefore, it may be safer to make your normal mortgage payment before closing, it will cover the interest for the previous month, and any overpayment will be refunded.

Consider the Impact on Your Finances

Making the payment on the 1st can help avoid any potential late fees or negative impacts on your credit score if the closing is delayed. However, if you're tight on cash, you might prefer to wait, knowing that the mortgage will be paid off at closing.

Review the Settlement Statement

At closing, you should ask for a copy of your payoff statement from your current lender. This document will show how the mortgage payoff is calculated, including any interest due. You should match the payoff amount to the settlement statement (often called a HUD-1 or Closing Disclosure) that outlines all the financial details of the transaction.

Refunds and Overpayments

Mortgage lenders are required to refund any overpayment of mortgages back to clients. Many settlement agents (attorneys or title companies) add a few days of additional interest to payoffs to make sure the mortgage is paid in full. Any overpayment of the mortgage will be refunded to you. However, this can take a few weeks.

Conclusion

In most cases, making the payment on the 1st is a safe choice to avoid any late fees and dings to your credit. In addition, paying the payment on the 1st reduces the interest needed to be collected on the payoff. However, it's essential to reach out to your current lender to learn about the grace period on your mortgage to help make your decision.

If you have other questions about the settlement process, please reach out at teamjd@mainstreethl.com

These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to the completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.

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