Definition of "Per Diem Interest"

Shawn Lee real estate agent
Shawn Lee, Real Estate Agent 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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Comments for Per Diem Interest


Davene Brown Davene Brown said:

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  10:03:41

 
Real Estate Agent

Hey 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  11:33:39
 

 

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