Closing date simply refers to the date when the closing took (or will be taking) place.
From a property buyer’s perspective, the closing date has a huge significance because real estate transactions often come with expiry dates for the validity of contracts.
For example a sales and purchase agreement will include with it the date by which the transaction should be completed. Or specify a certain number of days from the date of contract by which closing should take place.
This is a critical piece of information even though a deal involving a willing buyer and willing seller will unlikely get into trouble should the validity date is not enforced.
For deals involving disgruntled parties, going pass this date can give one party legitimate reason to challenge the transaction in court.
A buyer failing to execute the action demanded of him to close the transaction by the closing date will be a party in default due to the delay.
The seller can technically seek damages or sell to another buyer.
From a lender’s perspective, the closing date is important as it is a call for them to start charging interest on funds disbursed.
Notice the contrast in goals and objectives.
For a borrower, it would make little sense to start paying interest when he has yet to take possession of the house.
In view of these concerns by borrowers, developers selling new homes and condominiums usually require payments from buyers on a staggered basis for under construction property.
Partly because the homes will not be ready for a few years.
Why would buyers want to pay interest on a mortgage for up to 5 years on a house that is not ready!?
So instead of requiring full payment of a $250,000 condominium apartment at closing, a developer might structure payments at 10% at closing, 20% a year later, 30% 2 years later, and 40% at completion of construction.
This arrangement helps buyers save on interest costs and also helps alleviate the developer’s working capital constraints.
Let’s get back to the lenders.
Because lenders tend to practice standardization of accounting by setting all mortgage payment dates on the first day of the month, closing dates always mean a collection of per diem interest from the borrower.