About the Prepaid Interest Calculator
Mortgage interest is paid in arrears: your first regular payment covers the interest for the previous full month. To bridge the gap between closing and the start of that month, lenders collect “prepaid interest” at closing — daily interest from the closing date through the last day of the month. It appears in the Prepaids section (F) of your Loan Estimate and Closing Disclosure.
Enter the loan amount, interest rate and closing date. The calculator works out the per-diem interest, the number of days charged and the total prepaid interest, and shows when your first mortgage payment is due — normally the first day of the second month after closing. A chart shows how the prepaid amount changes with the closing day in that month.
Closing late in the month means less cash at closing but does not make the loan cheaper overall; you simply pay a different share of the interest upfront. Most lenders divide the annual rate by 365 days; some use 360, which slightly increases the daily charge.
With the default inputs, the prepaid interest due at closing is $1,006.03. Change any value above to recalculate instantly.
How to use the prepaid interest calculator
- 1Enter the loan amount and interest rate from your Loan Estimate.
- 2Pick the closing or funding date.
- 3Choose the day-count basis your lender uses (365 if unsure).
- 4Read the per diem, days charged and prepaid interest due at closing.
- 5Use the chart to see how a later closing date changes cash to close.
Formula and method
Lenders charge simple daily interest from the day the loan funds through the last day of that month, counting the closing day itself. The daily (per diem) amount is the loan balance multiplied by the annual rate and divided by the day-count basis, usually 365.
Your first regular payment is due on the first day of the second month after closing and pays the interest for the full month before it, which is why no payment is due in the month right after closing. In some states the loan funds a day or more after signing; use the funding date for the closing date in that case.
- basis
- Days in the interest year used by the lender (365 or 360)
- days
- Calendar days from closing through month end, inclusive
Worked examples
$320k at 6.75%, closing October 15
Daily interest is $320,000 × 6.75% ÷ 365 = $59.18. From October 15 through October 31 is 17 days, so prepaid interest is about $1,006. The first payment is due December 1 and covers November’s interest.
$450k at 7%, closing February 26 on a 360-day basis
On a 360-day basis the per diem is $450,000 × 7% ÷ 360 = $87.50. February 2027 has 28 days, so February 26–28 is 3 days and prepaid interest is $262.50. The first payment is due April 1.
Closing on the last day of the month
Closing on October 31 means only one day of interest — about $59 — is collected at closing.
Frequently asked questions
What is prepaid interest at closing?+
It is the daily interest on your new mortgage from the closing date through the end of that month. Mortgage interest is paid in arrears, so this covers the partial month before your first regular payment period begins.
How is per diem mortgage interest calculated?+
Multiply the loan amount by the annual interest rate and divide by 365 (or 360 if your lender uses that basis). For a $300,000 loan at 6.5% on a 365-day basis that is about $53.42 a day.
Does closing at the end of the month save money?+
It lowers the cash you need at closing because fewer days of interest are prepaid, but it does not reduce the total interest on the loan. Closing early in the month means more prepaid interest but the same first payment date.
When is my first mortgage payment due?+
Usually on the first day of the second month after closing. For example, if you close any day in October, your first payment is typically due December 1, and it pays November’s interest.
What is an interest credit at closing?+
If you close in the first few days of a month, some lenders start your first payment the following month and credit you interest for the days already passed instead of charging prepaid interest. Ask your lender whether they offer this.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.