Among all of the difficult choices associated with buying a house, choosing a time of month to close might seem like a low priority. Compared to many home buying decisions, it’s certainly lower stakes. Nevertheless, there’s likely $500 – $2,000 on the line when it comes to your closing date. That’s enough to pay for that beautiful Japanese maple tree you want to plant in your new yard or to help you get back on track with your budget after all the costs of moving.
The bottom line is that, all other factors being equal, most people will want to close at the end of the month in order to avoid paying extra mortgage interest. However, for some there are also a few complicating factors to consider, like an existing lease or homeowners association (HOA) fees on the new home.
This article will help you understand why closing later in the month usually saves you so much money. It will also show you the important questions you need to ask to make sure you choose the best closing date for your specific situation.
Refinancing your mortgage can help you save thousands of dollars in interest payments over the life of your loan. But when exactly should you refinance to maximize your savings? The best time of the month to refinance your mortgage is the last two weeks of the month. Here’s why closing late in the month gives you a strategic advantage.
Why the End of the Month is Ideal for Refinancing
There are a few key reasons why refinancing toward the end of the month is your best bet:
Lower Prepaid Interest
From the day you close on your refinance until your first payment is due, you have to pay interest on your new loan amount. This is known as “prepaid interest. “.
There is more time between the closing date and the first payment date if you close early in the month. This means you’ll pay more early interest. But if you close late in the month, say on the 25th, your first payment is due just a few days later, on the 1st. This means you pay less interest on interest that you already paid.
For example, on a $300,000 loan at 4% interest, closing on the 10th means you may owe $1,000 in prepaid interest versus just $200 closing on the 25th. That’s an easy $800 savings from timing it right!
Lower Upfront Taxes and Insurance
Many borrowers have an escrow account for taxes and insurance rolled into their monthly mortgage payment. At closing, you have to prepay a few months of these costs.
If your closing occurs just before a tax payment or insurance renewal, you’ll have to cough up a huge lump sum. But closing right after means fewer months to prepay.
One example is paying six months’ worth of taxes ahead of time if you close in December before getting a tax bill in January. But waiting until January means just 3 months prepaid. That’s 50% less!.
Quicker Payment of Cash-Out Proceeds
When you tap equity via a cash-out refinance, lenders have to cut you a check within a certain number of days after closing. In some cases it’s just 3-5 days.
If you close on the 25th, you might get your cash-out check on the 1st. Waiting until the 10th pushes that to the 15th, potentially. If you refinance at the end of the month, you can get your money faster.
Other Benefits of a Late Month Closing Date
Aside from the cost savings, there are couple other advantages to closing late in the month:
-
You have more time to shop for the best rate. Mid-month closings rush you to lock in earlier. Going later creates a bigger rate shopping window.
-
Underwriting and processing timeslines align better. Lenders are busier with new apps at the beginning of the month. So pipeline bottlenecks are reduced with an end-of-month close.
-
Income and asset verification is easier. Paystubs, bank statements, and other paperwork are more current toward month’s end. So there’s less lag time in documenting income sources.
When Specifically Should You Close?
If you had to pick the single best day of the month to close a refinance, it would be:
- The last business day of the month
This minimizes prepaid interest to the absolute lowest amount. For example, closing on the 30th or 31st means your first payment comes just 1-2 days later.
However, don’t get hung up on one specific date. The last week or two of the month are ideal in general.
Many factors affect exactly what day you’ll close, including processing times, title and appraisal schedules, rate locks, and more. So focus on the later part of month as a target.
Is the End of Quarter Also Advantageous?
For home purchase and refinance mortgages, lenders’ quarterly sales goals also come into play.
Many loan officers push to finish strong at quarter’s end. This means they may offer better rates for borrowers who close in the last month of a quarter:
- March (Q1)
- June (Q2)
- September (Q3)
- December (Q4)
So if you’re able to time your refinance for the final month of a quarter, you could potentially benefit from rate specials or lender discounts.
That said, the most important timing factor is still closing late in a given month. But the end of quarter gives you a second level of opportunity.
How to Time Your Refi Correctly
Here are some tips to make sure you refinance at the optimal time:
- Get rate quotes 2-3 weeks before your target close date to allow for processing
- Ask lenders if they have sales goals or promotions at quarter’s end
- Aim to lock your rate as late in the month as possible
- Be flexible on the exact closing date if delays pop up
- Discuss timing considerations with your loan officer early on
- Get documents and paperwork done ASAP to prevent delays
- Avoid closing at the very start of the month
With smart timing, you can maximize savings on your refinance. Just be sure to discuss your options with your lender so you pick the best all-around date to close.
The Bottom Line
Refinancing in the last two weeks of the month is ideal to reduce your upfront costs and speed up cash-out proceeds. The end of the quarter also presents opportunities for better rates or lender incentives.
Discuss timing considerations with loan officers early in the process. And don’t get hung up on one perfect closing date. Keeping your target timeframe flexible improves your odds of closing when planned.
With the right mortgage refinance strategy, you can save thousands over your loan term. Locking in a low rate near month’s end keeps more money in your pocket both short and long term!
Why closing early in the month is not ‘skipping’ a payment
Each mortgage payment you make will be due at the beginning of the month. Your first mortgage payment is unusual, however, in that it is due the first day after the first full month following closing. If you close on February 1, you will not have to make your first payment until April 1.
There is a lot of advice out there that makes it sound like closing on a home early in the month can deliver a month of “free” housing. This is not the case. Closing early in the month will result in an additional month in which you do not have to make a mortgage payment. You will still have to pay mortgage interest, though, and the total amount you owe will be the same as if you had closed later in the month. You will pay off your house on the same day as the alternate-universe version of yourself who closed later in the month, but you will have paid hundreds of dollars of additional interest for that first month of occupancy that they did not have to pay.
If you’re having cash flow issues, designating a month where you do not need to make a mortgage payment may be tempting, and it will probably be easier and less stressful to schedule a closing early in the month. However, you should keep in mind that you are paying a considerable amount for these conveniences.
An amortization schedule comparison
| Payment | Principal | Interest | Total interest | Balance | |
|---|---|---|---|---|---|
|
Feb. 1, 2021 |
$766 |
$0 |
$766 |
$766 |
$250,000 |
|
April 1, 2021 |
$1,190 |
$424 |
$766 |
$1,532 |
$249,576 |
|
May 1, 2021 |
$1,190 |
$425 |
$765 |
$2,297 |
$249,151 |
|
June 1, 2021 |
$1,190 |
$427 |
$763 |
$3,060 |
$248,724 |
| Payment | Principal | Interest | Total interest | Balance | |
|---|---|---|---|---|---|
|
Feb. 27, 2021 |
$766 |
$0 |
$55 |
$55 |
$250,000 |
|
April 1, 2021 |
$1,190 |
$424 |
$766 |
$821 |
$249,576 |
|
May 1, 2021 |
$1,190 |
$425 |
$765 |
$1,586 |
$249,151 |
|
June 1, 2021 |
$1,190 |
$427 |
$763 |
$2,349 |
$248,724 |
When you look at these two amortization schedules next to each other, the only thing that makes them different is that the earlier closing date means you pay more interest overall. No payment has been skipped via the February 1 payment.
Should You Close At The End Of The Month
FAQ
Is it better to close at the beginning or end of the month?
Closing a mortgage at the end of the month is generally preferred because it minimizes the amount of interest you’ll pay at closing, according to Rocket Mortgage. You’ll only be charged interest for the portion of the month you own the property, which is often minimal when closing at the end of the month.
What is a good rule of thumb for refinancing?
If you can lower your interest rate by at least 2%, it’s a good idea to refinance. This is an example of a $250,000, 30-year fixed-rate mortgage with 7% interest. The monthly payment for the principal and interest is $1,663. Refinancing at 5% would reduce your payment to $1,342 – a substantial savings.
At what point is it not worth it to refinance?
A refinance is likely not worth it if the financial benefit is lower than the refinancing costs. If you move before the closing costs are paid for, a refi may not be worth the time and money. Also, if you add more years to your payoff, you’ll be in debt longer and paying more interest.
When should I start refinancing?
You must give banks at least three month notice before refinancing your mortgage loan. If you want to refinance before your lock-in period ends, you’ll pay penalties. Plan ahead and give yourself at least 4 months to begin the refinancing process.