Deanna Valeo

What is better to close at the beginning of the Month or the end of the Month?


"A wise man will make more opportunities that he finds" ~ Francis Bacon

Recently I was asked, "when in the month should I close my loan?"  I would have to say closing at the beginning of the month is the best if at all possible with the following exceptions:  
  • - You currently do not pay a monthly housing payment (rent or mortgage payment)
  • - You are refinancing or selling a home with a FHA mortgage
  • - You have very little in liquid reserves – your lender will guide you in this case
To fully understand this let’s look at an example living in your home for the first three months:

You are getting a new home with a $200,000 loan at 4.875% 30-yr fixed mortgage and the monthly taxes and insurance are $500 a month. Also you are currently renting an apartment for $1000/month. If I close at the beginning of the month (let say a 30 day month - April) I will have 30 days of prepaid interest and no rent due. This is calculated at $200,000 * 4.875% / 360 * 30 = $812.50 in pre-paid interest (a closing cost). 

BTW: the banking world used 360 vs. 365 days for the year – I am not sure why however since it makes the daily interest charge higher – I feel it is a self fulfilling explanation.

In our example your new monthly mortgage payment with principle, interest, taxes and insurance (PITI) is $1,558.42 per month. Based upon closing at the beginning of the month my first new house payment will be in two full months June 1st. So for $812.50 I can live in my home for two full months. On June 1st I would pay $1,558.42 for a total of $2,370.92.

If I close at the end of the month April, 30th (or take interest credit) my closing costs are lower, in our example the prepaid interest is only $27.08 (1-day); however, my first payment is still due June 1st.  I would still have to pay for my rent for the full month of April $1000, and then make my first payment June 1st: $1000 + 27.08 + $1,558.42 = $2,585.50 during the three month period.

In our example we saved $214.58 over a three month period in cash flow; by closing at the beginning of the month.

Why not FHA?

FHA rules are that you must pay the entire months of interest when you pay off a FHA loan. So if you are purchasing with a FHA loan the example still works (usually better to close at the beginning of the month). If on the other hand you are refinancing a FHA loan or buying a new home and paying off a FHA loan then you may be better served waiting until the end of the month. Your mortgage professional can calculate the best course of action for you if you ask.
  • - If your rent is higher than one month’s interest only payment on your new loan: close at the beginning of the month.
  • - If you are refinancing or selling a home that currently has a FHA loan; close at the end of the month. 
Follow these rules and you could save yourself some cash.

Have a Fantastic Week and Remember We Are Here For You.


The Valeo-Croy Team - Call today:  (704) 488-1421
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421
Accessible | Program Expertise | On-Time Closings   

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**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher).



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