To Interest Credit, or Not to Interest Credit: That is the Question

By
Mortgage and Lending with First Heritage Mortgage NMLS #: 938761

When your home purchase or refinance closes within the first days of the month (within 4-10 days, depending on the investor), you have the option to do an interest credit.  That means your lender would credit you at closing with the days of interest for that month, and you would pay that interest in your first mortgage loan payment the following month.

Interest Credit Example:

Loan Amount: $260,988
Interest Rate/Term: 3.25%/30 year fixed
Closing Date: June 3
Interest Paid at Closing: $0
1st Mortgage Payment: July

PRO: Reduces the amount of cash you bring to closing.
CON: Your first mortgage payment is sooner.

Your other option would be to pay the interest at closing, and then skip the following month’s payment as shown in the example below.

Non-Interest Credit Example:

Loan Amount: $260,988
Interest Rate/Term: 3.25%/30 year fixed
Closing Date: June 3
Interest Paid at Closing: $650.72
1st Mortgage Payment: August

CON: Increases the amount of cash you bring to closing.
PRO: Your first mortgage payment is one month later.

If you are considering purchasing or refinancing in Richmond, VA please contact me for a free mortgage consultation. To stay informed, follow me on Twitter and like me on Facebook.

If you are interested in purchasing or refinancing in one of the following states, please contact me and I will be happy to connect you with a licensed loan officer in your state: Maryland, Delaware, Connecticut, Florida, Georgia, Maine, Massachusetts, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Washington D.C., or West Virginia.

Comments (3)

Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is the kind of information that borrowers need to understand early in the process so they will make the best decisions.

Apr 23, 2014 06:31 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Whitney - Thanks for the great information on to interest credit or not to interest credit at closing.

Apr 23, 2014 08:15 AM
Marshall Enterprises
Marshall Enterprises - Saint Michael, MN
Antiques, Lawn Care, and Trashouts

Interesting.   LOL!  But, I haven't purchased a home in over 20 years so I imagine that there are all kinds of things that have changed since then.  

May 12, 2014 10:45 PM