Now, this is just in. We represent a seller that is in escrow, is scheduled to record on the 11th and it’s just the beginning of the month. We’ve got an email here. This is the question: Can you please clarify something for me? Since we record on the 11th of this month, when is our last mortgage payment? Do we still pay for this month which is due on the 1st, which is just right now?
That’s an interesting question, so let’s talk about it. The seller thinks when he makes the payment on the 1st of the month that they pay for the coming month and the seller is questioning, well, if we close on the 11th of the month, why should I make the full month’s payment? But, that’s not quite correct. A mortgage payment is similar to a credit card payment. When you pay on the 1st of the month you actually pay back the money that was borrowed during the prior month.
So, in this case we do recommend for the seller to make the mortgage payment due on the 1st. Now, there is a grace period usually with mortgage payments and the grace period may go up to the 15th of the month. So, in theory, the seller could just say, well, I’m not going to pay because we’re going to close on the 11th and when it closes on the 11th the lender will get paid before the 15th, before the grace period.
But, there is a risk. The risk is, what happens if closing is delayed? Oops, things happen. So, if closing gets delayed to the 15th or beyond the 15th to the 16th possibly then the seller would be charged late fee plus interest by the lender. So, it’s safe to pay when the payment is due on the 1st or in the beginning of the month to avoid that risk of late fee I should say.
Just before closing, escrow will obtain the final loan payoff balance from the lender and so regardless if you pay, the seller will not be double-charged. Escrow will calculate it and prorate it accordingly so there’s no double charge.
That’s it for today. Thanks for watching. ~Aloha.