PATRICK'S QUICK ANSWER
Closing before the end of the month reduces the prepaid interest you pay at closing, because you owe interest from the closing date through the end of that month. A late-month closing means fewer prepaid days and less cash at the table, while an early-month closing spreads interest over more days. I weigh your cash to close against your move timing. It is a small scheduling lever that saves real money. Ask Patrick about your closing date.
Closing before the end of the month saves you money on prepaid interest. Your mortgage interest starts accruing on the day you close, not on the first of the next month. If you close on January 20, you only owe 11 days of interest for January. If you close on February 1, you owe a full month of interest for February. The difference can be $500 to $1,500 depending on your loan amount and rate.
The ideal strategy is to close as close to the end of the month as possible.
How Prepaid Interest Works
Mortgage interest is paid in arrears. Your first full mortgage payment is due on the first of the month AFTER you close. Between your closing date and the end of that month, you owe daily prepaid interest. Close on the 25th = 6 days of prepaid interest. Close on the 1st = 30 days of prepaid interest.
The Math
Let's look at a real example. A $400K loan at 6.5%. Your daily interest is calculated as:
Daily interest: $400,000 x 6.5% / 365 = $71.23/day
Close on the 25th: 6 days = $427
Close on the 1st: 30 days = $2,137
Savings by closing on the 25th: $1,710
End-of-Month vs Beginning-of-Month Closing
Here is the trade-off:
- End of month: minimal prepaid interest, first payment due next month.
- Beginning of month: maximum prepaid interest, first payment due the following month.
Both result in the same number of total payments. But closing at end of month delays your first full payment and reduces upfront costs.
Why Not Close on the Last Day?
The last day of the month (especially month-end) is extremely busy at title companies. Appointments fill up fast. Things can go wrong when everyone is rushing. Close 2 to 5 days before month-end for the best balance of savings and reduced stress.
When to Close at the Beginning of the Month
There are situations where closing at the beginning of the month makes sense:
- When the seller prefers it (negotiation).
- When the end of the month is unavailable.
- When your rate lock expires and you can't wait.
The savings are real but not worth delaying a good deal.
Ask Patrick about your closing date
Get a straight answer on interest, cash to close, and timing your close.
