The Grace Period for a Mortgage Closing

Home buyers enjoy a period of grace between closing and the date on which the first payment is due.
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Millions of Americans purchase or refinance primary, secondary and rental homes each year. The mortgage process can be long and tedious, yet the end result is rewarding. After making the down payment and paying all the upfront expenses incurred with purchasing property -- lender fees, inspection costs and attorney fees -- a period free of payments is welcome.

Rescission Period

When you refinance your primary residence with a government-guaranteed or conventional loan, you have a three-business-day grace period during which you have the right to rescind and cancel the refinanced loan. Every once in a while, something may occur that causes a homeowner to regret refinancing the loan. You may get laid off or get a job offer in another city or state. This three-business-day grace period is provided courtesy of the Truth in Lending Act. You must present the decision to rescind in writing.

First Mortgage Payment

When you purchase or refinance a home, your first mortgage payment is typically due on the first day of the month at least 30 days after closing. A portion of the upfront costs you pay at closing are prepaid interest. It covers the interest payment for the month the closing occurred and for the following month. For example, if you close on March 10, the prepaid interest would cover all of March and April and your first payment would be due May 1. If you closed on March 31, your prepaid interest would cover March 31 and all of April, and your first payment would still be due May 1.

Monthly Payment

Mortgage payments are generally due on the first of the month. However, most conventional loans and all federal-guaranteed loans allow a 15-day grace period. Any payment received after the grace period would be considered a late payment, subject to any late fees and applicable penalties. If a mortgage is due on June 1, the 15-day grace period would mean the mortgage payment was on time if received by the 15th, but would be late on the 16th. A payment made after this grace period could send the mortgage into default.

Warning: Grace Period May Vary

Make sure you read your loan documents. Not all mortgage loans require 30 to 60 days of prepaid interest. If your loan does not, the first loan payment may be due the 1st of the month following the month of closing. In addition, not all loans specify a grace period on monthly payments. Some may specify a seven- or 10-day grace period. The purpose of the grace period is to ensure that your payment has ample time to wend its way through the mail and the payment processing center. With a grace period, you are not penalized by circumstances beyond your control.

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