What Is Prepaid Interest

Prepaid interest charges are charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

How is daily interest calculated on a mortgage?

On a simple-interest mortgage, the daily interest charge is calculated by dividing the interest rate by 365 days and then multiplying that number by the outstanding mortgage balance. If you multiply the daily interest charge by the number of days in the month, you will get the monthly interest charge.

Can you prepay interest on a mortgage?

Prepaid interest, the interest a borrower pays on a loan before the first scheduled debt repayment, is commonly associated with mortgages. For mortgages, prepaid interest refers to the daily interest that accrues on the mortgage from the closing date until the first monthly mortgage payment is due.