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From what I understand, banks prefer to have loan payments due on the 1st of the month. To that end, if you close on a property on, say, the 15th, they will charge you a pro-rated payment to get you to the 1st of the next month, after which you make your payments as planned.

1) How does the pro-rated payment get calculated in terms of how much goes to interest and how much to principal?

Also, 2) are the rest of the payments (from the 1st of the next month) calculated as if the principal was the original minus the principal paid in the one pro-rated payment?

Example for #2 - say you close on the January 15th for a $100,000 loan. Pretend pro-rated is $300 principal, $300 interest. Would you calculate the rest of the payments, starting on February 1st, as if you have a completely new loan with principal of $99,700?

Thanks!!

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  • In california - I'm actually building software for a friend who is in real estate so that's him talking.
    – jraede
    Commented Jan 30, 2014 at 0:34

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The closing settlement pays interest to the first, then the mortgage amortization starts.

e.g. You close on Dec 15th. At the closing, you pay the interest due through the end of the month. Jan 1 you owe the exact mortgage amount, but no payment due. Feb 1, is your first payment on the amortization schedule.

Also - In the US a standard amortizing mortgage does not credit for an early payment or penalize for one after due date (but prior to grace period). To be clear, a customer who sends in the payment on the 25th, a week early, will not be charged less interest for early payments, nor will the chronic 7th of the month person see their mortgage have more interest applied.

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  • So from what I read, because mortgages are "arrears", you pay at the end of the month instead of the beginning, correct? So that's why Feb 1 is the first payment on the amortization schedule?
    – jraede
    Commented Jan 30, 2014 at 5:30
  • Exactly right. I hope my date choices above clearly showed that.
    – JTP - Apologise to Monica ♦
    Commented Jan 30, 2014 at 10:53
  • Great, thanks for your help! And just to clarify, the interest from Dec 15th to Jan 1, let's say if it's 100k at 5%, would be ($5000/365 = $13.698) * 16 days from 12/15 to 1/1 =$219.18. Correct?
    – jraede
    Commented Jan 30, 2014 at 18:33
  • @jraede - no, 17 days. 90% sure of that. I may be wrong.
    – JTP - Apologise to Monica ♦
    Commented Jan 30, 2014 at 20:04
  • Well depends if you include the 15th, which I guess you do since you technically have the loan then. So 15th-31st inclusive is 17, so I think you're right. Anyway, thanks again for your help.
    – jraede
    Commented Jan 30, 2014 at 20:05

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