How to use the mortgage prepaid interest calculator
- Enter the loan amount, the interest rate and your closing date.
- Choose the day count your lender uses (365, 360 or the actual days in the year) and whether the closing day itself is counted.
- Open the advanced options if your lender rounds the daily interest to the cent first.
- Read the daily interest, the days of prepaid interest, the amount due at closing and the date your first payment falls due.
Formula
daily interest = loan x rate / days in the year used
days = days from the closing day to the end of the month (plus one if the closing day counts)
prepaid interest = days x daily interest
first payment = first day of the second month after the closing month
Mortgage interest is paid in arrears, so the first full payment covers the month before it. Prepaid interest covers the part month between closing and the start of that first period.
A $300,000 loan closing on November 20
A $300,000 loan at 6% on a 365 day year earns 300,000 x 0.06 / 365 = $49.32 a day. Closing on November 20 with the closing day not counted leaves 10 days to the end of November, so prepaid interest is 10 x $49.3151 = $493.15. The first payment falls due on Friday, January 1, 2027.
Counting the closing day makes it 11 days and $542.47. On a 360 day year the daily interest is exactly $50.00 and 10 days cost $500.00. Rounding the daily interest to $49.32 first would give $493.20. Closing on November 30 leaves no days to pay.
Why the closing date matters
The later in the month you close, the fewer days of prepaid interest you pay, and the cash needed at closing falls. But the first payment date does not move, so closing early in the month gives you a longer gap before the first payment. Which is better depends on cash at closing against cash during the gap.
Prepaid interest is one line among many. Add the rest with the Closing Cost Calculator, the Escrow Calculator and the Mortgage Points Calculator. The monthly payment itself comes from the Mortgage Calculator.
Where lenders differ
Lenders differ on the day count, on whether the closing day counts and on rounding. Your loan estimate and closing disclosure show the amount and the figures used. The choices here let you reproduce that figure, or compare lenders on the same basis.
Assumptions and limits
- Interest is charged from the closing day to the end of the month, and the first payment is due on the first day of the second month after closing.
- The rate is a fixed yearly rate, and the loan is paid in full from the first payment on.
- The actual days option uses 365 or 366 days according to the closing year.
- Loans with other first payment rules or interest-only starts are not modeled.
- Your lender's disclosure is the final word; this is an estimate.
Frequently asked questions
Is prepaid interest the same as points?
No. Points are a fee paid to lower the rate. Prepaid interest is ordinary interest for the days between closing and the end of the month.
Why is the first payment so late?
Interest is paid after it builds. The first payment covers the first full month, and the part month before it is covered by the prepaid interest.
Which day count should I pick?
Use the one on your loan estimate. If it does not say, ask your lender, since the three options give slightly different amounts.
What if I close on the last day of the month?
With the closing day not counted, there are no days left, so prepaid interest is zero. If your lender counts the closing day, it is one day.