Is it Cheaper to Close at the End of the Month?

31 12 2007

When you obtain a loan to purchase a home, you’re required to prepay any interest that will accrue from the date of closing until the end of the month. So, in theory, the closer your closing is to the end of the month, the less you have to pay in closing costs.

This portion of interest is charged to the buyer at closing because mortgage payments are made in arrears. Unlike paying a rent, a monthly mortgage payment actually covers the previous month. For example, if you were to purchase a home and close in January, your first mortgage payment would not be due until March 1. The payment on March 1 would cover the principal and interest owed to the lender for the month of February. For a visual illustration, take a look at the sketch above.

Regarding the prepaid interest, assume your actual closing date is January 15th. Your prepaid interest charge is as follows:

Mortgage amount:    $175,000
Annual (fixed) interest rate: 6%
Daily interest charge:    $28.68

Now compare the potential savings in prepaid interest when closing on the 31st vs. 15th.

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Subprime Mortgage Meltdown?

27 03 2007

Provided By: CBS

This segment details what’s become of the subprime mortgage market and explains how to avoid financial disaster before shopping for a loan.  

According to Freddie Mac, subprime loans account for 50 percent of current home foreclosures. So, what does this mean for the Texas housing market?

“Dr. Mark Dotzour, chief economist with the Real Estate Center, says the real vulnerability in the residential housing market is in the entry-level housing category in regions where a large percentage of buyers have purchased with little or no down payment.

In recent years, investor thirst for the higher yields of mortgage-backed bonds has allowed mortgage lenders to relax credit standards and issue loans that have a much higher risk of foreclosure,” Dotzour said. “It stands to reason that when you make riskier loans, you are going to have more foreclosures” (Real Estate Center | Texas A&M University, January 2007).

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