Conventional Loan PlusPer Diem Interest Demystified: Your Ultimate Guide
There is a possibility that you may be
obliged to make daily interest payments for a mortgage that you get.
This concept is sometimes referred to as accumulated daily interest.
The daily interest rate is computed beginning with the settlement
date and continuing until the last day of the month. It is virtually
the same as making a payment on an interest-only mortgage. Consider
a per diem interest payment on a mortgage the same as an
interest-only mortgage.
Calculating Per Diem Interest
The calculation for per diem interest is simple.
Just multiply the loan amount by the interest rate, and divide the result
by 365 (days). The result is the daily interest owed to the lender.
Now multiply the daily interest rate by the number of days remaining
in the month; add in the day of closing.
| Loan Amount | X Interest Rate | = Total Interest | Number of Days in a Year | Daily Interest Cost | Multiply by | = The number of days owed | Total per diem interest paid |
|---|---|---|---|---|---|---|---|
| $100,000 | 3.00% | $ 3,000 | 365 Days | $ 8.22 | X | 16 Days | = $ 131.51 |
When is the First Mortgage Payment Due?
The
first mortgage payment is due one full month following the closing
date of the home purchase.
In other words, your mortgage payment is for the previous month.
Unlike a rent payment, which is paid for the upcoming month, a
mortgage payment is paid for the previous month.
Here's an example. If you settle your mortgage in January, your
first payment must be paid on March 1st.
The March payment is for February. If you close in July, the
first payment should be paid on September 1st.
Let me say it again. The mortgage payment is for the previous month, not the upcoming month.
| If you close in | Your first payment is due in |
|---|---|
| January | March |
| February | April |
| March | May |
| April | June |
| May | July |
| June | August |
| July | September |
| August | October |
| September | November |
| October | December |
| November | January |
| December | February |
What is a First Payment Letter?
You will (should) get a document titled a
first payment letter at settlement. This document specifies the
mortgage amount and instructs you on how to make the initial
mortgage payment. The initial payment letter is because your lender
may not provide your payment book before your first mortgage
payment.
The initial payment letter should be used until your loan
information is entered into the lender's computer. REMEMBER NOT TO
BE LATE! You should make your mortgage payment as well before the
payment is due.
Delays can be caused by the post office and even a virus. Consider
paying a small premium if you make an erroneous payment. Send the
excess amount by another check and save the canceled check or bank
statement in a secure location. Consider the Amortization
calculator. You will be astounded at how much interest you may lose
by adding a few dollars to each.
Conclusion
If you're taking out a mortgage loan, you might notice a charge per diem interest, calculated by lenders to cover the number of days between loan closing and the last day of the month when the borrower's monthly payment is due.
To calculate per diem interest, lenders typically divide the annual interest rate by 365 days, multiply that by the principal balance, and then multiply the result by the number of days between loan closing and the last day of the month. As a borrower, it's important to understand how per diem interest can impact your total mortgage cost and ensure that your monthly payments are made on time to avoid additional interest charges.
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