Per Diem Interest
Definition of "Per Diem Interest"
Interest from the day of closing to the first day of the following month. To simplify the task of loan administration, the accounting for all home loans begins as if the loan was closed on the first day of the month following the day the loan is closed. For example, if the loan is closed and the money disbursed on May 15, the clock begins ticking on that loan as if it were closed on June 1, with the first payment due July 1. But since the lender actually gave you the money on May 15, the lender expects to be paid interest for the period between May 15 and June 1. That payment is the 'per diem interest,' which is due at closing. If the loan in the example above was $100,000 and the interest rate 6%, the per diem interest would be $100,000 x .06/365 x 17, or $279. In some cases, especially when a loan is closed early in the month, the lender is willing to rebate interest to the borrower for those few days and collect the first payment a month earlier. If the loan above was closed May 3, for example, the lender would pay three days of interest at closing and collect the first monthly payment on June 1.
Popular Mortgage Terms
The longest period for which the lender will lock the rate and points on any program. On most programs, the longest lock period is 90 days; some go to 120 days and a few to 180 days. It ...
Deceptive practices used by mortgage loan providers and other participants in the mortgage process. Scams by Loan Providers: Lenders and mortgage brokers may employ a number of tricks ...
During the great depression of the 1930s, the government stepped in and came with an innovative loan to help the banking industry recover, thus putting the whole economy back on track. FHA ...
A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate. ...
The definition of an assumable mortgage is what happens when a buyer assumes or takes over a mortgage that the seller contracted. This is a type of financial arrangement that passes an ...
A bundle of mortgage characteristics that lenders view as comprising a distinct category. The characteristics used include whether it is an FRM, ARM, or Balloon, the term, the initial ...
Often referred to as a “second mortgage”, a home equity loan is a type of loan where the borrower disposes to the lender its equity to the home as collateral. To ...
An independent contractor who offers the loan products of multiple lenders, called wholesalers. Mortgage brokers do not lend. They counsel borrowers on any problems involved in qualifying ...
The lowest interest rate possible under an ARM contract. Floors are less common than ceilings. ...
Comments for Per Diem Interest
I am purchasing a foreclosure property, need to get an extension on closing date, the seller is charging me a standard fee of $300 and $100 per diem, what does this mean?
Feb 28, 2020 10:03:41Hey Davene! “Per diem” is a financial term meaning “for each day”. Since mortgage lenders conveniently have their mortgage payments due on the first of each month, not everyone receives the money for a mortgage on precisely the first day of the month. That’s why borrowers have to pay per diem interest for the days between the mortgage and the beginning of the next month.
For example, a borrower is approved on a $100,000 loan with a fixed interest rate of 4.5% for 30 years. The borrower’s lender requires that payments begin on the first day of the next month but the borrower’s loan is closed on July 27 and he receives his money on the same day. For the five days prior to the first day of the next month, the borrower is required to pay the lender per diem interest.
Since you extended the closing date that might not coincide with the first day set by the lender before a full month of a repayment cycle. So you would have to pay per diem interest. Also for more strategies for avoiding paying interest rates through passive income check out our article. We also have some articles related to foreclosure properties, steps to avoid foreclosure and how to rebuild your life after a foreclosure. Hope this was helpful!
Apr 01, 2020 11:33:39Have a question or comment?
We're here to help.