The opportunity to skip your first mortgage payment is not a gift per se from your lender. When you buy a house and you get a mortgage on it, some or most lenders would let you skip the first month and you chuckle at your luck and their magnanimity. For instance, if you buy a house in February, you might not be required to make your first mortgage payment until April. Lenders will make you feel this sounds like a generous deal but it essence, nothing is free and you are not that lucky, at best the option to delay the payment of the first mortgage is a marketing gimmick. How do you know, ask yourself if you are really saving money as a result of skipping the first mortgage payment?, In truth actually,, banks (lenders) would scarcely give anyone a free month because they are in a good mood. So why are you the ‘special one ‘ who gets to skip the first mortgage payment?
Lets do the numbers!
Here’s why the banks are not so generous, If your mortgage payment is $2,500 a month, it seems like being allowed to wait six weeks to two months to make your first payment will save you $2,500. However, the bank is still getting their money. When you get a property on mortgage, you pay other ancillary fees and taxes like interest, principal, taxes, and insurance. A portion of that $2,500 is property taxes, insurance, and interest on the loan, and a portion is the principal balance of the loan is paid down. So while you are enjoying your ‘break’ . you are still paying interest on the loan, and the prepaid interest you pay at closing will increase the longer it is until your first payment.
The initial interest payment on a $100,000 loan at 6% is $500. It is .06 times 100,000 divided by 12. If you skip the first payment, the $500 is added to the balance, making it $100,500. In the following month, your interest payment will be $502.50. The additional $2.50 is on the $500 you skipped. Further, the interest payment will remain higher throughout the remainder of the life of the loan, relative to what it would have been had you not skipped the first payment.
Should you skip your first mortgage payment
While we have shed light on the fuss around skipping your first mortgage payment but is delaying your first mortgage payment a bad thing?. When you purchase a property, it is a good thing to pay off all prepaid fees attached to such property, especially when you are buying a new home and you have to pay closing costs, although you might ask the seller to cover some of the closing costs and this might be beneficial to both you the buyer and the lender as they bring less money to the table, thereby saving cash in the instance. you may be able to ask the seller to pay part of your closing costs. If the seller is paying part or all of your closing costs, it could be a huge advantage to delay the payment as much as possible.
Bottom-line, its very advantageous to get the right information before embarking on a financial decision regarding property and we at Need To Skip have designed products to keep you at an advantage in real estate investing.