Buying a home or refinancing a home mortgage remains one of the most important financial decisions one will make in a lifetime. There are very few personal decisions one can make which involves such an important investment, both in terms of economics and in terms of psychological well-being.
It stands to reason that the average consumer hopes that the process of purchasing a home will be a pleasant experience. Of course, we never wish our experiences not to be pleasant but when the stakes are so high, we would especially like the process to go smoothly. Why not remember our first or subsequent home purchase as a great experience?
Unfortunately, for many the experience is stressful, rushed and anything but pleasant. There are many reasons for this, not the least of which is our unfamiliarity with the process. Many of us know much more about purchasing and financing cars than we do our home. And at the end of the process we schedule the settlement in a way which places the odds against the smoothest closing experience.
The day of closing is the day in which the papers are signed and we take ownership of our new property. There are a myriad of details which must be taken care of to make this day happen. There are also a myriad of papers which must be signed the day of settlement (or go to escrow in some states)—many of which the average consumer does not understand.
Imagine this experience. You walk into your settlement and a stack of papers is placed in front of you. The settlement agent explains what each paper represents—in thirty seconds or less. You stare at one paper—The Promissory Note—which seems to obligate you for over $300,000 for thirty years. You would like to read this Note in detail and ask some questions before you sign such.
Unfortunately, the settlement agent has another closing scheduled in thirty minutes. Not wanting to rock the boat, you sign and promise yourself that you will read the paper later. Some title companies will afford you the opportunity to read these documents on-line before the closing, but most do not.
Seem like a pleasant experience? This is more likely to happen when you schedule your closing during the last two days of the month. Up to 40% of the purchase transactions settle on these days. It is at this time that you are more likely to receive the substandard service and produce the most stressful experience. Need to ask questions of the settlement agent or loan officer? They are likely to be busy. Need a last second adjustment from the appraiser? Expect the same.
Why does everyone like to settle the last day of the month? They think that it is cheaper because there is less odd-days interest. Every mortgage starts at the first of the month. Interest is paid in arrears—so if you close in July, the first payment is due September 1. At settlement you must pay the interest which will take you to the first of the month (August 1). If you close July 15th, 15 days interest will be due. If you close July 30th, one days interest will be due. However, the more interest you pay at settlement, the more the next payment will be delayed. If you close July 15th, there will be 45 days until your first payment. If you close July 30th, there will be 30 days until your first payment. In other words, you are delaying the inevitable!
Lenders have ways to mitigate the effects of up-front interest charges — such as billing the odd-days interest so you can pay it later — for those who would like to close the first few days in the month. Why transform the settlement into a stressful experience just to change the numbers a few hundred dollars, when the total cost will remain the same within sixty days? Why not stack the cards in favor of a pleasant settlement experience?
Settling just a few days before the end of the month can give you a few days extra to move as well. Moving and closing in the same day can add event more stress to the experience. So why not provide a great start to your ownership experience?