It is a widely held belief that buyers should schedule closing for the end of the end of the month so they can pay less prepaid interest at closing and save money. As is the case with much conventional wisdom the facts are a bit different.
In fact, buyers don’t save money by closing at the end of the month. A month end closing means buyers pay less prepaid interest, but skip only one subsequent monthly mortgage payment. Meanwhile, buyers who close at the start of the month pay more prepaid interest, but then skip two monthly payments. The difference between the two strategies is really one of cash flow not cash savings. As a borrower you get no interest free days no matter what day of the month you choose to settle.
Closing on the last day of the month there would be approximately one day of interest charged. When closing on the 15th of the month where there will be 15 to 16 days of interest expense charged.
There are other factors to consider when you choose to close at the end of the month. At the end of some months a real estate office can resemble the King Of Prussia Mall on Black Friday. Lots and lots of activity with closing scheduled back to back throughout the day.
Also consider:
Cutting it too close: If a problem arises that pushes the closing to the following day you would then be settling on the first day of a new month and the entire month’s interest would then be added to the closing costs.
Back-up: Because there are often multiple closings scheduled on the last day of the month, closings may experience a domino effect. If one of the closings earlier in the day is delayed it may push back each subsequent closing to a later start time. If you are delayed and you are paying a mover by the hour to sit outside your new home waiting for the OK to move in your bill will be larger than you anticipated.
Moving Companies: Because many buyers and sellers are scheduled to move on the last day of the month, their schedules are full – it will be difficult to shop around for the best deal with the better moving companies. You may be left having to pay a higher hourly rate because they are so busy.
Wire Transfers: Wire transfers of money from the lender to your title company happen multiple times per work day. If your delay runs past the last wire time, your settlement may not be officially closed out until the following day. If your closing is on a Friday, it may not fund until Monday. This means you may not be given the keys to your new home until the money hits the Title Company’s account.
Closing on the last day of the month does not save you any money and can in fact and can add a layer of stress that just does not have to be there. Play if safe and alleviate some tension and close earlier in the month.
Wallingford PA Real Estate – Wallingford, PA 19086
