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 ...
The process of determining whether a prospective borrower has the ability to repay a loan. Qualification Versus Approval: To be approved for a loan, a prospective borrower must ...
The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A mortgage interest rate is a rate on a loan secured by a specific property. ...
A transaction in which interest is not paid on interest there is no compounding. For example, if you deposit $1,000 in an account that pays 5% a year simple interest, you would receive ...
An option exercised by the borrower, at the time of the loan application or later, to 'lock in' the rates and points prevailing in the market at that time. When lenders 'lock/' they ...
The ratio of total housing expense to borrower income. This ratio is used (along with other factors) in qualifying borrowers. ...
A government-owned or -affiliated lender that makes home loans directly to consumers. With minor exceptions, government in the U.S. has never loaned directly to consumers, but housing banks ...
The sum of all interest payments to date or over the life of the loan. This is not a good measure of the cost of credit to the borrower because it does not include upfront cash payments and ...
Trying to find the best deal on a mortgage. It isn't easy to do right, as a summary of the major steps involved will demonstrate. Step 1: Decide if you are a potential shopper. Step 2: ...
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.