Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners.
After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage payment. Luckily, a lender will usually award you with a substantial grace period before that first bill is due. This will give you the opportunity to reevaluate your finances, build a budget, plan for the future, and manage cash flow if necessary.
Here’s what you should know when it comes to your first mortgage payment.
When Is The First Mortgage Payment Due?
The date your first mortgage payment is due all depends on when you closed on the home.
Typically, the first payment is scheduled on the first day of the following month after you’ve closed. There should be at least 30 days between the closing date and initial payment due date.
For example, if you closed on September 15th, your first payment wouldn’t be due until November 1st. From there, your payments will be due the first of every month.
It’s important to remember that everything mentioned above generalizes what you should expect for that first payment. Every homeowner’s situation will vary slightly. Your lender will provide you with documentation that outlines all the details for the first payment and subsequent ones as well. You should receive this at the closing.
By scheduling your closing date earlier in the month, you can give yourself a longer grace period to save for the first mortgage payment.
On the flip side, homebuyers who close later in the month will owe less prepaid interest. The interest on your mortgage immediately begins to accrue after closing.
Therefore, if you close on September 15th and your first mortgage payment is due on November 1st, you’ll be charged prorated interest for those 45 days.
Looking at the bigger picture, accrued interest won’t stop until the loan is fully paid off. That’s a part of the deal you made with the lender and why they agreed to loan you all that money.
RELATED: Amortization Schedule Calculator
What’s Included in a Mortgage Payment?
The main components of your mortgage will consist of the loan principal, interest, taxes, and insurance. Here’s what each means.
Essentially, when you take out any sort of loan the majority of the payments is split between principal and interest.
The loan principal refers to the initial loan amount, separate from interest. It’s the money you borrow from a lender and agree to pay back over a certain period of time.
But a lender will not give you borrowed money for free. That’s where interest comes in. Interest is the cost associated with taking out a loan. The amount of interest paid on the loan depends on the principal amount, the total time it takes to pay back, and your interest rate.
As you begin to make payments, the amount you owe (the principal) will begin to decrease. The amount of monthly interest paid on the loan, however, will remain at the same percentage throughout the loan term, unless you decide to refinance.
The monthly mortgage payments will also include taxes and insurance. Property taxes are based on the value of your home, including land and any additional structures on the property.
The first year of homeowner’s insurance fees are typically rolled into the closing costs. After that, the premium will be added onto your monthly bill.
You can use this mortgage loan amortization calculator to see how your payments break down between principal and interest over time.
How to Pay Less in Interest
Much of your monthly mortgage payment will go towards interest, especially in the beginning. The lender wants to ensure they will be paid back.
But you can reduce your loan principal significantly by prepaying the mortgage. This could entail making an extra payment once a year, adding a few dollars to each monthly payment, applying a lump sum of cash if available, etc.
Essentially, these extra payments will be applied to the principal loan balance, not interest. You’d be surprised at how much you could save on interest by paying a little extra towards the principal. Plus, it’ll help you build equity in the home that much faster.
How to Make a Mortgage Payment
Your lender will explain how you’ll pay each mortgage payment. These are the most common ways to do so:
An automatic payment plan is a great tool to set up, that way you’ll never be late on a payment.
Usually, the lending institution you receive the loan from will require you to set up a savings account with them. Your mortgage payments can then be auto deducted from that account each month.
Just make sure you have enough money in the account to avoid an overdraft or a possible penalty.
You should also be given the option to make payments through the website of your lending institution. This is an easy and convenient way to manage your mortgage loan, along with cash flow and other payments.
While most homeowners choose to pay the mortgage online, there should be an option to pay by mail as well.
A loan can be paid with a personal check, money order, or cashier’s check. Make sure to allow enough time for the check to be delivered to the bank. This will help avoid any late fees or penalties.
Over the Phone
Finally, you could call the lending institution and make a payment over the phone. You will need to provide them with your mortgage loan account number and bank account information.
This is an excellent option for those who may not have access to a computer, but do not want to risk getting hit with a late charge if sent through the mail.