Calculate Per Diem Interest: Your Guide to Daily Mortgage Costs

When you're buying a home, understanding per diem interest can save you money and prevent surprises at closing. This daily interest charge bridges the gap between your closing date and the last day of the month, and knowing how to calculate it puts you in control of your finances.

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What Is Per Diem Interest?

Per diem interest refers to the daily interest that accrues on your mortgage loan between the closing date and the end of the month, which can significantly affect your total per diem interest. Lenders charge per diem interest to account for the days you hold the loan before your regular payment schedule begins. Think of it as rent on the money you borrowed, calculated one day at a time.

Your mortgage payment typically starts on the first day of the 2nd month following your closing. If you close on the 15th, you'll prepay interest for those 15 days. If you close on the 28th, you only prepay for a few days. The timing of your closing date directly affects the amount of interest accrued before your first official payment is made.

How to Calculate Per Diem Interest

The formula to calculate per diem interest is straightforward. You take your loan amount, multiply it by your annual interest rate, then divide by 365 days. This provides the per diem interest rate, which indicates the exact amount you'll pay each day.

Here's the basic formula: (Loan Amount × Annual Interest Rate) ÷ 365 = Daily Interest

Once you know your daily interest rate, multiply it by the number of days between your closing and the end of the month. This total becomes your prepaid interest charge at closing.

Breaking Down the Math

Let's say you're borrowing $300,000 at a 6.5% interest rate and closing on March 15th. First, multiply $300,000 by 0.065 to get $19,500 in annual interest. Then, divide $19,500 by 365 to calculate your daily interest rate, which is $53.42 per day. That's your per diem interest.

Since March has 31 days and you close on the 15th, you have 16 days remaining (including the closing day). Multiply $53.42 by 16 days to get $854.72. That's the amount of interest you'll prepay at closing.

A per diem interest calculator can do this math instantly. Many mortgage websites offer a per diem calculator that handles the computation for you. Enter your loan amount, interest rate, and closing date to view your daily interest charge.

Try our per diem interest calculator