Where every dollar of a mortgage payment goes
Interest in arrears: paying for last month
In one paragraph
Yes. A mortgage payment covers the interest for the month that just ended, not the month ahead. At closing you prepay interest from the closing date to the end of that month, and your first regular payment, usually due on the first of the month after next, pays the interest for the first full month.
Last reviewed against the primary sources listed below.
A closing-day example in words
Close mid-month. At closing you pay interest for the remaining days of that month. The next month passes with no payment. On the first day of the following month, your first payment covers that full month's interest plus some principal.
Where to see it
Prepaid interest appears on the Closing Disclosure under prepaids. Your servicer's statements show interest for the prior month.
Paid in advance?
Principal and interest are not paid in advance. Escrow for taxes and insurance is collected ahead of the bills it pays, which is why escrow and interest feel different.
Common questions about interest
Are mortgage payments in arrears?
Yes. Each payment covers the interest for the previous month.
Is a mortgage payment paid in advance?
No. Interest is paid in arrears; only escrow deposits for future taxes and insurance are collected ahead.
Do you pay mortgage interest in arrears?
Yes. That is why prepaid interest is collected at closing and why the first payment is due about a month and a half later.