How is Per Diem Interest Calculated?

  Loan Amount  
  Interest Rate  
  Annual Proration  
  Number of Days  
  Daily Interest  

Welcome to our article on how per diem interest is calculated. If you've ever taken out a loan or a mortgage, you may have come across the term "per diem interest." But what exactly does it mean and how is it calculated? In this article, we will break down the concept of per diem interest and explain the calculation process in simple terms. So, if you're curious to learn more about this important aspect of borrowing and lending, keep reading!

How to Calculate Per Diem Interest on a Mortgage

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?

Woman writing a check for her first mortgagee paymentThe 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 first payment letter at settlement. This document specifies the mortgage amount and instructs you on how to make the first mortgage payment. The first  payment letter is used 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: How is Per Diem Interest Calculated?

In conclusion, understanding how per diem interest is calculated is essential for anyone who has borrowed money. By breaking down this concept and explaining the calculation process in simple terms, we hope to have provided clarity on this important aspect of borrowing and lending.

Knowing how per diem interest works can help you make more informed financial decisions and manage your loans effectively. So, the next time you encounter this term in a loan agreement or mortgage statement, you'll have the knowledge to navigate it confidently. Keep exploring and educating yourself on financial matters to empower your financial future!


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