What is pre-paid interest? EZ Mortgages & loans in Boston

What is pre-paid interest?

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.

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