Ask almost any first-time buyer and they’ll tell you they were confused when their lender said: “Your first mortgage payment won’t be due for a month or two.”

Sounds like a free month, right? Well, not exactly. Welcome to the world of short interest.

Interest Is Always Paid in Arrears

Here’s the key fact: mortgage interest is always paid after the fact, not in advance. If you make your mortgage payment on July 1, you’re actually paying for June. Lenders are legally not allowed to collect interest ahead of time.

This also explains why sellers are often shocked when they see their payoff statement — it’s usually higher than expected because they’re actually one month behind on interest.

So How Does This Affect You as a Buyer?

Let’s say you close on July 15th.

• Your first full mortgage payment won’t be due until September 1st (covering August).
• But from July 15–July 31, you’ve already borrowed the money and lived in the home. That interest has to be paid somehow.

The solution? At closing, the lender charges you short interest for those partial days.

Example: $400,000 Loan at 7%

• Monthly interest = $2,333
• Daily interest ≈ $77
• Close on July 15 = 16 days of interest = $1,232 due at closing
• Close on July 27 = 5 days of interest = $385 due at closing

That’s a big difference — just based on your closing date.

Why This Matters

If you close early in the month, you’ll owe almost a full month’s interest at closing. If you close near the end of the month, you’ll owe very little. Either way, it’s cash you have to bring to the table.

Here’s a quick comparison:

How to Use This to Your Advantage

If you’re tight on cash, try to schedule your closing toward the end of the month. That way, you’ll owe fewer days of short interest and have less cash out of pocket.

Yes, it means your first mortgage payment will come up a little sooner (still at least a month away), but most buyers find it’s worth it when money is tight at closing.

House Karma Tip

Think of short interest as one of the only parts of closing costs you can actually control. By moving your closing date even a week or two, you can cut hundreds or even thousands off what you need to bring to the table.

Bottom line: Short interest isn’t optional, but with smart timing, you can make it a lot easier on your wallet.