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
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 ...
A documentation rule where the borrower discloses income and its source but the lender does not verify the amount. ...
Wondering who is this Fannie Mae person that your real estate agent always mentions when the subject about mortgage is brought up? Fannie Mae is not a person, nor a Woody Allen female ...
The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house. Construction can be financed in two ways. One way is to use two ...
A mortgage on which all settlement costs except per diem interest and escrows are paid by the lender and/or the home seller. A no-cost mortgage should be distinguished from a ...
The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented. ...
A revers mortgage program administered by Fannie Mae. ...
Also called variable or flexible rate mortgage, an adjustable rate mortgage (ARM) is a mortgage where the interest rate is not constant, but changes over time by the mortgage lender. ...
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.