Office of Loan Programs

Interest in Arrears
Jay Valancy
June 2001

Almost every first-time homebuyer asks, “When will my first payment be due?” or, its’ variant’ “My escrow is closing in the middle of the month, why isn’t my first payment due on the first of next month?”

The answer to both of these questions is the same: interest is paid in arrears. Simply put, the payment you make on the first of each month pays the interest for the month just ended and the principal for the month ahead.

At the close of escrow, you will be asked to pay interest from the date of funding to the end of the current month (often referred to as “pre-paid” interest). For example, if your loan funds on October 17, you will be asked to pay interest from October 17 through October 31. As this amount is usually lumped together with the escrow/title charges and the much larger downpayment, it is easy to overlook. In the example above, your first payment would be due December 1 and pays the interest for the month of November.

This pattern will continue throughout the life of the loan. For this reason, the maturity date on a typical 30-year loan will always be the first of the month after the month of funding. If you held our sample loan to maturity, the final payment would be due November 1. This method of accruing interest is standard for virtually every mortgage loan in this country.

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