# How is Per Diem Interest Calculated?

*How much interest do you pay the lender at settlement?*

When
you take out a mortgage, you may be required to pay per diem
interest. This is also known as accrued daily interest.

**Per diem
interest is calculated from the date of settlement to the end of the
month.** It's essentially like making an interest-only mortgage
payment. Think of per diem interest on a mortgage as an interest
only mortgage payment.

## Per diem interest calculation (see the calculator below)

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 |

## Mortgage per diem interest calculator

## 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 on your mortgage in January, your
first mortgage payment will need to be paid on March 1st.

The March payment is for February. If you close in July, the
first payment should be paid September 1st.

Let me say it again. **The mortgage payment is for the previous
month, not the up coming month.**

If you close in | You're 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 mortgage?

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
reason for the initial payment letter is that your lender may be
unable to provide your payment book prior to 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. .
Additionally, consider paying a small premium. If you make an
erroneous payment. Send the excess payment by another check and save
the cancelled 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

Per diem interest is a type of interest that is calculated based on the number of days between the date of a loan's closing and when the first payment is due. This type of interest can be beneficial to borrowers because it allows them to avoid paying interest on the full loan amount upfront. However, it is important to remember that per diem interest will accrue on the outstanding balance of the loan if payments are not made on time.

Recommended Reading

- Find out the credit requirements for a conventional loan.
- How the Conventional Loan Debt to Income Ratio Affects You
- Why do I need to put down earnest money on a house?