Mortgage closing guide
Prepaid Mortgage Interest Calculator for Closing
Prepaid mortgage interest covers the partial period around closing before the normal monthly payment cycle begins. The amount depends heavily on the closing date and the lender calculation method.
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Calculate the mortgage per diem
Multiply the mortgage principal by the annual note rate and divide by the lender day-count basis to estimate interest per day.
Count the prepaid-interest days
Determine whether the closing date is included and the date through which interest is collected. A later closing date usually means fewer prepaid-interest days in that month.
Use the note rate, not automatically the APR
The mortgage APR can include other finance-charge effects. Prepaid interest is generally based on the rate actually used to accrue interest on principal.
Compare the result with the closing disclosure
The calculator can check the arithmetic, but the lender closing documents determine the actual amount due and the exact dates used.
A $350,000 mortgage at 6.5% on Actual/365 accrues about $62.33 per day. If 12 interest days are collected, estimated prepaid interest is about $747.95.
Frequently asked questions
What is prepaid mortgage interest?
It is interest collected for the short period between the closing date and the beginning of the normal mortgage payment cycle.
How is prepaid interest calculated?
Calculate mortgage interest per day and multiply by the number of interest days being collected at closing.
Does closing later in the month reduce prepaid interest?
Usually, because fewer days remain before month-end, although the closing date can affect other timing and transaction considerations.
Should I use APR or the mortgage note rate?
Use the rate the lender actually uses to accrue interest on principal. The disclosed APR may include other finance-charge effects.