Learn how closing dates, prepaid interest, and escrow accounts determine your cash to close and when your first payment is due.
When you buy a home, the closing date on your contract does more than just determine when you get the keys. It dictates exactly how much cash you need to bring to the escrow company and how many weeks you get to skip a monthly payment. Understanding how prepaid interest and escrow accounts interact is one of the most practical ways to manage your cash flow during a move.
Most buyers are surprised to learn that mortgage interest is paid in arrears, meaning you pay for the time you already lived in the house. This unique billing cycle creates a gap between your closing date and your first official payment. It also creates a closing cost line item called prepaid interest, which covers the daily interest charges for the remaining days of your closing month. You can explore how these upfront charges affect your overall out-of-pocket expenses in our guide to loan closing costs.
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Programs mentioned
- Adjustable Rate Mortgages
A lower fixed period, deliberately chosen.
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