Per Diem Interest

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.

References in periodicals archive ?
The department said it found two types of violations: per diem interest overcharges and a failure to fully disclose finance charg against the federal Truth in Lending Act.
Norwest faxed the payoff statement, indicating the outstanding principal mortgage amount and the per diem interest rate.
0 million on or before June 9, 2003 plus a per diem interest charge from and after May 30, 2003 to retire all amounts owed to Smithfield.