Here’s the skinny on paying a mortgage vs. rent.

Did you know that when purchasing a home or condo, you will have a bit of a breather before writing your first mortgage check?

This is because mortgage is paid “in arrears”– a fancy way of saying that it is paid after the fact. Rent, on the other hand, is paid upfront for the month ahead. So for example, when you are renting, you pay your rent for the month of July on or before July 1st.

When you own a home, you pay your mortgage for the month of July on or before August 1st (or later since most lenders typically allow a grace period of 10-15 days after the due date without penalty). The reason it is paid in arrears is because you are paying the interest on that month when it is due, so it must be paid at the end of the month when the interest comes due.

At your settlement, the closing agent will collect interest from you for the remaining days in the current calendar month that you settle in.

The interest and mortgage for that month is charged as part of your closing costs up front, it is not an additional charge.

So if you close on your home June 15th, then your first mortgage payment (for July) will not be due until August 1st. The settlement company sends the portion for June 15th-31st. Many buyers do not take this into account and are pleasantly surprised that they do not have to make any payments on February 1st!
So first time homebuyers, keep this tidbit in mind if the thought of buying a home overwhelms you. It’s very nice to have that bit of financial breathing room, especially since you will likely be doing lots of furniture shopping for your new home in that first month! Just don’t forget when you go to sell, that you have to pay the extra month on the other end.

As always, feel free to contact us here at The Goodhart Group if we can demystify the buying or selling process for you!