What is prepaid interest?

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Hello! This is Joe Harris with Morgan Financial and here is your “Joe Knows Mortgages MINUTE.” This week, we answer the question: What is prepaid interest?

You’re getting ready to close on your home, your lender sends your closing disclosures for you to review, and you see a section for “prepaid interest” on your closing disclosures. What exactly is prepaid interest? When you see this on your closing disclosures, this is essentially an up-front payment to pay for your first month’s interest. But why is it paid this way?

Interest is paid in arrears, meaning your monthly mortgage payment pays for the previous month’s interest, which doesn’t begin accruing until after you’ve closed on your loan. So, let’s say you close in the middle of June. You typically won’t make your first mortgage payment until August because you’ve already paid for July’s interest and principal at closing!

In short: prepaid interest is just that – interest you’re pre-paying at closing.

Everyone’s situation differs depending on your individual qualifications and mortgage needs, as well as loan program, so contact us or book your loan consultation today to get started on your homebuying journey with our team of mortgage experts you can trust!

Thank you for tuning in to this Joe Knows Mortgages Minute. If you have any home loan related questions, we want to hear from you, so please comment down below! If you liked this video, please share this information with your family and friends. See you next time!

Joe

Chief Operating Officer

Joe Harris is the COO of Morgan Financial, where he oversees operations, sales, and marketing to ensure a fast, enjoyable, and consistent mortgage experience. With more than 25 years in the industry and over $1 billion funded, Joe combines deep expertise with a passion for helping clients achieve homeownership. He is also dedicated to training and equipping loan officers with the tools and strategies they need to thrive in a competitive market.

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