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I never really thought about this but here's the question. I'm a little confused on this matter because my sister presented this to me.
With the mortgage do you pay the "rear" or in "the front"
I know for renters, they always pay one month in advance. So the August 2009 rent is paid on August 1st and that takes them from August 1-31st.
However, and this is confusing for me with mortgages.
Say my sister closed on her refinance June 6 2009. On her HUD-1, she prepaid interest from June 6th-June 30th.
However, your old mortgage company still took out automatically her mortgage payment due on July 1st 2009 ($6K).
Her new mortgage companies first payment is due on August 1st 2009.
I hope someone is following my question here. So when she closed (refinanced) June 6th 2009, was her mortgage for July not paid for? And that's why the old bank took out the mortgage payment July 1st-July 31st.?
And now her new mortgage is due August 1st on her new company.
I'm just very confused or not thinking straight on this matter so that's why I posted this question.
I agree with Debsi. Mortgages are paid in arrears (at the end of the month), so if she refied on June 6th, she should have paid the prorated portion to the old lender for the 1st through the 6th in the closing, and it sounds like also prorated to the new lender from the 6th through the end of the month. Then her first payment would be August 1st.
She should have paid off the first mortgage in the closing, and shouldn't owe anything to the OLD lender, ever again, including July 1st. If they prorated the 6th-30th of June into the closing, she shouldn't owe anything to the new lender until August 1st. She shouldn't be paying anyone anything on July 1st.
HOWEVER, you said, "still automatically took out her mortgage payment"...did she have it set up on auto pay, where a certain dollar figure automatically gets paid to the bank on a certain day each month? Did she cancel that manually? If not, the bank might not have done that for her. She needs to cancel that autopay, and then get the bank to refund that money. If I followed your story correctly, it is her money that they charged by mistake, but the mistake is partly hers, so you can't entirely blame the bank. Call the bank and let them know an error has been made and get the process started to get that money refunded.
This clarifies everything for my sister with her refinancing questions.). So Rents are paid one month in advance. And mortgages are paid in the rear. That makes sense.
I always wondered what the "gap" month was in between prepays on your closing statement and the next time you were required to pay your mortgage.
Well it sucks for me next month when I close on selling my house. I thought I would get refunded a portion of my August mortgage payment but seems like I will have to folk over another 2K in interest payments as the partial payment for August. Hey I'm already losing more than 130K on the...might as well add another 2K to my loss.
so, if the mortage statement date shows to be 11/01/12, it means my x amount of mortgage (principal + interest) was paid for the past month of October. Is that correct? But. I read somewhere that interest portion of the mortgage is for the past month (that is october, 2012), and the rest (principal in that x amount of mortgage) is for the current month of November. Is that correct. I am confused
so, if the mortage statement date shows to be 11/01/12, it means my x amount of mortgage (principal + interest) was paid for the past month of October. Is that correct? But. I read somewhere that interest portion of the mortgage is for the past month (that is october, 2012), and the rest (principal in that x amount of mortgage) is for the current month of November. Is that correct. I am confused
Basically it works like this:
Let's say on October 1 your balance was X. And based on what you initially agreed upon, you have an interest rate R%, and make a payment P each month.
On November 1st, you're paying the interest that was collected in October. So on Nov. 1, your new balance is (temporarily) X*(1 + R/12). And then you subtract P from that for your true new balance on Nov. 1. Obviously P will be greater than X*R/12, so your balance goes down compared to October 1, as the extra payment money beyond the interest pays down the principal.
So say X = $100,000, R = 6%, and P = $800.
On October 1 your balance was 100,000, then you accrue $500 interest (100,000*.06/12) in October, then you make a $800 payment, so your new balance November 1 is now $99,700 (100,000 + 500 - 800).
And the process repeats each month.
Now, P was initially calculated so that you would have the same payment each month for the life of the loan (15 or 30 years usually) and have the balance go down to 0 in that time frame. Extra payments throw off the initial amortization table, but the process above still works the same.
Anyone closing in the first week of any month needs to contact their lender for their situation. Lenders can do what is called an "interest credit." Say they are closing on the 4th. The lender would give the borrowers a 4 day interest credit on the HUDI and move the payment up by 30 days.
Anyone reading here needs to contact their lender for their specific circumstances.
if I close on Oct 1st, or 15th, can I set up the first payment on Nov 1st, or Dec 1st.
Trick question.
If you close by October 5, you can request an Interest Credit, which would place your first payment due at November 1. Or you can pay 25-30 days of interest at closing, and the first payment would be December 1.
Generally if you close October 15, your first payment will be due December 1.
However, your old mortgage company still took out automatically her mortgage payment due on July 1st 2009 ($6K).
This is exactly the reason I tell people never do auto pay. It's a dangerous trap that can cost you a lot of money and grief.
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