Although rent is paid in advance, mortgage interest is paid in arrears. For example, a May 1st payment pays April’s interest.
With one exception, interest is prorated to the day of closing. A buyer and seller pay interest on their respective loans for each day of their ownership during the month of the sale. A buyer who closes at the end of the month needs to bring less cash to a closing than a buyer who closes earlier in the month.
Here's the exception to the "prorated-to-the-day" rule: interest on FHA loans is not prorated on a daily basis when the loan is being paid off. FHA loans are prorated a month at a time. So, if you're a seller with a FHA loan, it's wise to close at the end of a month. If you have to pay for the entire month, you might as well live in the property!
3. A seller’s last month’s mortgage payment is often paid at closing.
The IRS allows buyers to deduct origination and discount points in the tax year of the sale. If you have the option of purchasing property at the end of one year or at the beginning of the next, consult your tax professional for advice on when to schedule the closing to your advantage.
If you’re thinking of buying or selling your home, please give me a call at
903-957-0109 or e-mail me at: bstidham@virginiacook.com <mailto:bstidham@virginiacook.com>. If you have a question regarding this or any other real estate topic, log on to my website at:www.RealEstateInfoGuide.com <http://www.RealEstateInfoGuide.com>.
Bruce Stidham is a licensed Texas Realtor with Virginia Cook, Realtors in Sherman.
This article is not intended to provide specific advice, but rather to provide insight into matters that we feel are useful.
As always, seek professional advice prior to taking any action.