Question 1

What is per-diem interest?

Accepted Answer

Per-diem interest is the daily interest charge on a mortgage. At closing, the lender collects prepaid (or interim) interest from the day the loan funds through the last day of that month, because the first regular payment covers the following full month in arrears. Per-diem interest = daily interest rate × the number of days remaining in the closing month.

Question 2

How do you calculate daily (per-diem) interest?

Accepted Answer

Daily interest = (Loan Amount × Annual Interest Rate) ÷ days in year. Using the 360-day method: ($200,000 × 0.06) ÷ 360 = $33.33/day. Using the 365-day method: ($200,000 × 0.06) ÷ 365 = $32.88/day. Multiply the daily figure by the number of days from funding to the end of the month to get the total prepaid interest collected at closing.

Question 3

What is the difference between the 360-day and 365-day methods?

Accepted Answer

The 360-day method (the 'banker's' or 'ordinary' year) divides the annual interest by 360 and is the most common convention on the NMLS exam because it produces round monthly figures. The 365-day (or 'exact') method divides by the actual number of days in the year. The 360-day method yields a slightly higher daily amount. Always read the exam question to see which method it specifies.

Question 4

Why is prepaid interest collected at closing?

Accepted Answer

Mortgage payments are made in arrears — each payment covers the interest that accrued the prior month. Because the first full payment is usually due on the first of the second month after closing, the days between the funding date and the end of the closing month would otherwise go uncharged. The lender collects that gap as prepaid (interim) interest at closing so no interest period is skipped.

Question 5

Does the closing date affect how much per-diem interest is due?

Accepted Answer

Yes. Closing early in the month means more days remain until month-end, so more prepaid interest is collected. Closing near month-end means fewer days and less prepaid interest. Borrowers who want to minimize cash due at closing often schedule closings toward the end of the month — a common NMLS exam scenario.

Per-Diem Interest Calculator

Per-Diem & Prepaid Interest Calculator

Worked Example

Per-Diem Interest — Frequently Asked Questions

Practice 5 MLO / NMLS exam questions