Per Diem Interest

Example

“The per diem interest on their $300,000 mortgage at 6% was $49.32, which they had to pay for the three extra days between closing and their first payment date.”

Memory Tip

Think 'per DAY-um' - it's the daily dose of interest you're charged, like taking medicine per day.

Why It Matters

Per diem interest affects closing costs because borrowers must pay interest for each day they own the loan before their first regular payment begins. Understanding this calculation helps borrowers budget for closing expenses and choose optimal closing dates to minimize initial interest costs.

Common Misconception

Borrowers often think they don't owe any interest until their first mortgage payment is due, but per diem interest starts accruing immediately upon loan closing.

In Practice

A borrower closing on a $300,000 loan at 6% annual interest on March 15th will owe per diem interest of about $49.32 per day from closing until April 1st when regular payments begin. The closing statement will show 17 days of per diem interest totaling approximately $838.

Etymology

From Latin 'per diem' meaning 'for each day' - literally the interest you owe for each individual day you hold the loan.

Common Misspellings

More in financing

Other financing terms you should know