Scheduling a closing on one of your purchases is typically up to you and the seller. The sellers need time to schedule a closing on their new property with an attempt to close on your purchase. Most often, the sellers need to close on their existing home in order to access the proceeds from the sale to useprepaid interest for the next purchase.

When is the best time to close, given sufficient time for everyone to get their paperwork together? For a purchase, the best time is toward the end of the month. For a refinance it’s the sooner the better, regardless of what time of the month you choose and it’s all because of prepaid interest charges.

Mortgage interest is paid in arrears which means the principal and interest payment you make each month is accrued interest from the previous month. An October 1st payment is for September interest. That said, when you first close the new lender will require per diem interest up to the first of the following month, in essence your first mortgage payment to them. If you close on the 30th, the lender will collect one day of interest, on the 29th, two days and so on. That’s why closing toward the end of the month saves cash.

When refinancing, your goal is typically to get a lower rate and once you decide to refinance you want to get the lower rate as quickly as possible to begin saving interest sooner. If you close on the 10th of the month, your lender will collect 20 days of the new, lower interest and your old lender will be paid 10 days of interest at the old rate. Some lenders even forego prepaid interest completely if you close anytime between the 1st and the 5th. In a refinance, you get to choose the closing date. In a purchase, try to get the closing date toward the end of month.