What is pre-paid interest?
This is interest due from the date of a loan closing to the first day of the following month. Most loans require payments to be due on the first day of the month. Each monthly payment reflects the principal and interest due on the loan for the previous month. A loan closing on the 20th day of the month will require an interest adjustment through the 1st day of the following month. The first payment will then be due on the 1st day of the month following. Interest adjustment is considered a settlement charge and will be disclosed on the HUD.
This is interest due from the date of a loan closing to the first day of the following month. Most loans require payments to be due on the first day of the month. Each monthly payment reflects the principle and interest due on the loan for the previous month. A loan closing on the 20th day of the month will require interest adjustment through the 1st day of the following month. The first payment will then be due on the 1st day of the month following. Interest adjustment is considered a settlement charge and will be disclosed on the HUD.
This is interim interest that accrues on the mortgage loan from the date of the settlement to the beginning of the period covered by the first monthly payment. Since you pay interest in arrears, your mortgage payment made in June actually pays for interest accrued in the month of May. Because of this, if your closing date is scheduled for June 25, your first mortgage payment will be due August 1 (and will pay for the interest for the month of July). The lender will then calculate an interest amount per day that is collected at the time of closing (hence the name pre-paid). This amount covers the interest accrued from June 25 to July 1. What is an escrow account? An escrow account is typically established at the time you close your mortgage loan. This account is held by the lender for the future payments of recurring items relating to the mortgaged property, such as real estate taxes and insurance premiums (hazard and mortgage), as they become due. Lenders usually require you to pay an
