Calculate the daily interest on your mortgage with this calculator. This is useful for determining exact interest owed for early payoff or mid-month closings.

Per Diem Interest on Mortgages: What It Is and How to Calculate It

Per diem interest is the daily interest charge on your mortgage loan. It represents the amount of interest that accrues each day between your loan closing date and your first official mortgage payment. Understanding per diem interest helps you anticipate closing costs and see exactly how much you owe for the days you own the home before the loan term officially begins.

How Per Diem Interest Works

When you close on a mortgage, your loan funds transfer to the seller, but your first regular monthly payment is not due for a full month. The lender still charges interest during this gap. Per diem interest fills that gap by calculating what you owe on a daily basis.

For example, if you close on the 15th of a month, your first mortgage payment might not be due until the 1st of the following month. Per diem interest covers those 17 days. The lender adds this daily interest charge to your closing costs, and you pay it at the closing table.

The Per Diem Interest Formula

Calculating per diem interest uses a straightforward formula:

Per Diem Interest = (Loan Amount × Interest Rate) ÷ 365

Let's work through an example. Assume you borrow $300,000 at 6.5% interest and close on the 15th of the month.

First, calculate the daily rate: ($300,000 × 0.065) ÷ 365 = $53.42 per day.
If you close on the 15th and your first payment is due on the 1st of the next month, you owe per diem interest for 17 days: $53.42 × 17 = $907.14.

When Per Diem Interest Appears

Per diem interest always shows up on your Closing Disclosure, the final document provided three days before closing. Most lenders collect this charge at closing and include it in your total cash needed to close. Some sellers help cover per diem interest as part of seller concessions, though this varies by market and negotiating position.

Does the Closing Date Matter?

Yes. Closing early in a month means more days until your first payment, so more per diem interest. Closing late in the month means fewer days of per diem charges. Some buyers strategically close near month-end to reduce this cost.

Per Diem Interest vs. Your Regular Payment

Per diem interest is separate from your monthly mortgage payment. Your regular payment begins the month after closing and includes principal, interest, taxes, insurance, and mortgage insurance if applicable. Per diem interest is a one-time charge that appears only at closing.

Key Takeaway

Per diem interest is a normal closing cost that reflects the daily interest your lender charges between closing and your first payment. By understanding how it works and how to calculate it, you can review your Closing Disclosure with confidence and know exactly what you owe on settlement day.