Does it make a difference what part of the month you choose for closing on your new mortgage loan? The answer is a firm "it all depends." Or, if you prefer, "yes or no."

It does make a difference if you're:

• Paying off a present FHA loan
• Currently renting by the month
• Short of cash for the closing

For starters, if you already have an FHA mortgage on the house you're moving out of or refinancing, then it does indeed matter when in the month you pay that old loan off. Even if you closed out an FHA mortgage on June 2, you'd be charged interest for the whole month of June.

Why? "That's just the way FHA does it," says one banker, "and I wish people would understand that we don't get to keep the extra interest; it's forwarded to HUD."

So for an old FHA loan being paid off, it's best to schedule the transaction as close as possible to the end of the month. Otherwise, you could end up paying twice -- on your new loan and the old one -- for the whole month.

Beyond that, there is no hard-and-fast rule, and the answer depends on your individual situation. Part of the answer lies in your housing needs: if you're living free with your folks, any part of the month would do for closing because you won't end up still paying rent after you already own -- and owe on -- your new house.

On the other hand, even renters sometimes like to close as early as possible, so they can have the new house vacant for painting or installing improvements before they move in.

If you're cutting it close on the cash needed to buy the new home, it may be wise to schedule the closing as late in the month as possible. That's because you will be asked to pay interest immediately for the remainder of the present month.

Interest is usually paid in arrears (the opposite of in advance), but if you close on June 15, you'll be asked to pay cash at closing to bring you paid up to July 1. After that interest will indeed be paid in arrears, and you won't owe a monthly payment (for the July interest) until August 1.

Which always comes as a welcome surprise.

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Published: April 26, 1999

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