Find the Best Time to Close on Your Florida Home Loan
There are countless questions/issues to consider as you look into a Florida home loan. Here’s another: once you determine the property you wish to purchase, when should you close on your mortgage? Is there an advantage to signing on the dotted line during a certain time of the month?
Many experts would say YES. Closing on a home requires you to prepay any interest that will accrue on your Florida home mortgage loan from the date of the transaction until the end of the month. Therefore, the closer your closing is to the end of the month, the less you have to pay.
Why you should close later in the month on your Florida home loan
Unlike rent, which is often paid in advance for the upcoming month, Florida home loan payments are generally paid in arrears to cover the previous month. If you close in April, your first mortgage payment won’t be due until June 1 - the start of the first full month afterwards. That payment will include the interest and principal you owe for May.
But interest accrues from the date of closing. If you close April 15, you will also owe 15 days of interest for April. Your lender will therefore add this amount (sometimes called pre-paid interest) to your closing costs. If you close April 29, you will only be charged for two days of interest. Here’s an example of how it works:
Example of up-front savings:
Mortgage amount: $200,000
Interest rate: 7%
Daily interest: ($200,000 x 7%) = $38.36Close April 15: prepay 15 days interest (15 x $38.36) = $575.40
Close April 29: prepay 2 days interest (2 x $38.36) = $76.72
The exact amount you save changes if your closing date changes. If you expect to close on, say, April 29, but the closing is pushed back to May 5, then your prepaid interest closing costs will change dramatically. That’s one reason why people sometimes see big fluctuations in closing costs from the figures originally quoted in the Good Faith Estimate they received from their lender.
Of course, the end of the month can also be a very busy time for closing agents and Florida home loan lenders. You may receive extra personal attention if you avoid this time period. In the big picture, moreover, your interest rates will remain the same - the timing of your closing only impact that first monthly bill. Avoiding this time could mean you’ll receive more personal attention.
In other words, don’t despair if you have to close early in the month - some advisors even recommend it because it won’t have a major impact on the price of your Florida mortgage loan.
