Definition
Prepaid interest is the interest on your mortgage that you pay at closing. It covers the time between your closing date and the end of the month.
Understanding Prepaid Interest Charges
Prepaid interest charges typically appear during the closing process of a mortgage. They cover the interest on your loan from the closing date until the end of that month. In simple terms, prepaid interest is an upfront payment to ensure your first full mortgage payment aligns with the start of a new month. Example: If you close on June 15, you might prepay interest for 15 days until June 30. It's not an extra fee or penalty, just a way to synchronize your payment schedule. Many misunderstand this as an additional cost, but it's part of the standard closing expenses.
