Per Diem Interest

Definition of "Per Diem Interest"

Shawn Lee
  Keller Williams Realty

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.

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