Accrued Interest
Interest that has accumulated on a loan or mortgage from the last payment date through a specific point in time, typically calculated daily. This represents money owed but not yet paid, and it appears in loan payoff calculations and closing statements.
Example
“By the time of closing, the buyer owed $1,247 in accrued interest on their construction loan from the last payment date to the settlement date.”
Memory Tip
Think 'a-CREW-ed' - like a crew of workers building up your debt, interest keeps building up day by day until you pay.
Why It Matters
Understanding accrued interest helps borrowers accurately calculate payoff amounts and closing costs, as they'll be responsible for interest that accumulates up to the actual closing date.
Common Misconception
Accrued interest is not the same as a penalty - it's simply the normal interest that builds up between scheduled payment dates.
In Practice
A homeowner planning to pay off their mortgage on March 15th discovers they owe an additional $387 in accrued interest beyond their February payment, representing 15 days of daily interest accumulation on their remaining loan balance.
Etymology
From Latin 'accrescere' meaning 'to grow' or 'increase' - interest that has grown or accumulated over time like interest on unpaid bills.
Common Misspellings
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