Closing costs traditionally refer to fees charged by mortgage companies and third parties. Pre-paid expenses and escrows are also included in closing settlement statements and are sometimes mistakened as closing costs, but they are technically a separate category. Details of pre-paid expenses and escrows for Burlington MA loan closings is provided in this article.

Pre-paid Expenses

Pre-paid expenses are items that must be paid at closing but technically cover a future period of time. Common pre-paid charges are insurance and interest. Homeowners insurance consists of a yearly premium that must be paid up-front. Some buyers submit payment for the amount directly to the insurance provider prior to the closing, while some do so at the closing. Interest is another pre-paid expense. Mortgage payments are usually paid in arrears, meaning that they cover a past month. For instance, if you closed on a home January 15th, your first mortgage payment would not be due until March 1st, and it applies to the February time frame. So there is no payment to cover January 15th-31st. The interest for that period of time is charged at the closing as pre-paid interest.

Escrows for Home Purchases

Escrows are payments held in a holding account, known as an escrow account, and disbursed when needed. They are used to cover recurring fees such as private mortgage insurance (PMI), real estate taxes, and homeowners insurance. Each month, as part of the monthly mortgage payment, a certain amount is directed into the escrow account. When PMI, taxes, or insurance payments are due, the appropriate amount is taken from the escrow account. This accomplishes two goals. First, it removes the difficulty of home buyers having to save for the large fees. Secondly, the mortgagor ensures that the payments are made, which preserves their interest in the property. Escrows are not required by all lenders, but it is typical for mortgages with small down payments.

Details Of Pre-paid Expenses And Escrows For Burlington MA Loan Closings

The amount of pre-paid expenses and escrows will differ depending on the season or time of month. Closing near the end of a month will minimize pre-paid interest. Pre-paid taxes and escrows will depend on the community and when tax bills are due. If minimizing funds required for closing is critical, discuss the time lines with your real estate agent and mortgage advisor. For additional resources or assistance on the above “Details Of Pre-paid Expenses And Escrows For Burlington MA Loan Closings”, you may reach Peter DaMore at Law Offices of Peter T. DaMore Jr. via phone at 781-229-7900 or email at