The question…

“Can anyone explain to me about mortgage interest credit? I have read many documents and just need it in simple term. Any help is greatly appreciated!”

My answer:

Mortgage interest credit is a credit for days of interest if your mortgage closes and funds within the first 5 days of the month. It’s not a credit from some outside source but a credit for days of interest so you don’t pay more than you should.

Mortgages are paid in arrears which means your payment is for the previous month’s principal and interest.

If you’re buying and the closing date is March 3rd you are within the interest credit window. Your next mortgage payment would be April 1st. Your April mortgage payment includes all 31 days of interest in March.

But since you didn’t have the mortgage for the first 3 days of March, you get those 3 days credited back to you at closing.

The other option would be to pay the remaining 28 days of March at closing and not have a mortgage payment until May 1st.

Most people opt for the interest credit option and lenders are used to doing it that way. A mortgage interest credit only applies to a mortgage that closes/funds in the first 5 days of the month…and that can be a purchase or refinance.

A purchase closes and funds on the same day but a refinance closes on one day and funds after the right of rescission.

If it funds within the first 5 days, then you get the mortgage interest credit.

I don’t know how simple that was but there you go!

Thanks for the question…

Good Luck!

Previous Post:«

Next Post:»