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What is prepaid interest on a Loan Estimate?
Updated November 2026 · Every dollar figure is an illustrative example, not a quotePrepaid interest is the interest on your new loan from the day it funds to the end of that month, paid at closing because mortgage payments cover the month before, not the month ahead. On a $380,000 loan at 6.625% it is about $69 a day, so closing on the 15th costs about $1,170 and closing on the 28th about $280; you choose the closing date, so you choose this number.
Where it is on the form
Page 2, Section F, Prepaids, as Prepaid Interest ($__ per day for __ days @ __%). The per-day figure is the loan amount times the rate divided by 365 (some lenders use 360). The number of days runs from the funding date through the last day of the month.
On $380,000 at 6.625%: $380,000 × 0.06625 ÷ 365 ≈ $68.97 a day. Close on the 1st and you prepay a whole month, about $2,140; close on the 30th and you prepay one or two days. The Loan Estimate guesses a closing date; the Closing Disclosure uses the real one.
Why it exists: a mortgage payment due on June 1 pays May's interest. If the loan funds on May 15, there is half a month of May interest that no regular payment will cover, so it is collected at closing. Your first full payment then falls on July 1, covering June.
The trade-off people miss: closing on the 28th keeps prepaid interest tiny, but the first payment is only a month away. Closing on the 2nd costs nearly a month of interest at closing but the first payment is almost two months away. The money is the same; the timing is yours to pick based on your cash.
A few lenders offer 'interest credit' closings in the first days of a month, where the lender credits you the few days back to the 1st and your first payment comes a month sooner. It shows here as a negative number.
Can you shop for it?
Not as a service, but you control it directly through the closing date. Closing late in the month minimizes it; closing early in the month maximizes it but pushes your first full payment a month further out. The total interest you pay over the loan is the same either way; this is only about when.
Can it change between the Loan Estimate and closing?
No tolerance limit, because it depends on the funding date, which moves. A closing that slips from the 28th to the 3rd of the next month changes this line from about $280 to about $1,930 on the $380,000 example, with no rule broken. The rate behind it is protected separately by your lock.
A worked example (illustrative)
A $380,000 loan at 6.625%, closing on May 15. The figures are illustrative.
| Closing date | Days to prepay | Prepaid interest | First full payment |
|---|---|---|---|
| May 2 | 30 | $2,069 | July 1 |
| May 15 | 17 | $1,172 | July 1 |
| May 28 | 4 | $276 | July 1 |
All three closings have the same first payment date, July 1, so the only difference is cash at closing. The late-May close saves about $900 of cash at the table compared with mid-month and about $1,800 compared with early May, and in exchange you own the house for fewer days of May. Nothing about the loan's total cost changes.
Questions to ask the lender
- What closing date did you assume, and what is the per-day interest at my rate?
- Do you calculate per-diem on a 365-day or a 360-day year?
- If I close on the 1st or 2nd, do you offer an interest credit instead?
Red flags
- A per-day figure that does not equal the loan amount times the rate divided by 365 or 360.
- Prepaid interest at a rate higher than your locked rate.
- A closing date assumed on the 1st, which makes the estimate's cash to close look higher than you may actually need.
Questions people ask
Why do I pay interest at closing?
Because mortgage interest is paid in arrears: each payment covers the month just ended. The days between funding and the end of that month have no payment to cover them, so they are paid at closing. Your first regular payment then comes on the 1st of the month after next.
Does closing at the end of the month save money?
It saves cash at closing, not money overall. You prepay fewer days of interest, but you also own the home for fewer days. Total interest over the life of the loan is the same; only the timing of the first chunk changes.
Can prepaid interest change at closing?
Yes, without limit, because it depends on the actual funding date. The Loan Estimate assumes a date; the Closing Disclosure uses the real one. The rate it is computed at is your locked rate, which is protected separately.
Only have one quote? That's the problem.
Tell us the rate and the fees you were quoted. It is free, there is no credit pull, and nobody calls you. We check whether another lender beats it, fees included. Or start with the free Loan Estimate checker, which reads your rate, points and Section A and flags anything out of the ordinary.
Check my quoteEvery dollar figure on this page is illustrative. Fee ranges are general observations, not a survey or a quote, and are not a loan offer, approval, commitment to lend, or Loan Estimate. Your actual rates and fees depend on qualification with lenders, your state and county, and your closing date. The tolerance rules described are the federal TRID rules in general terms; the rule itself and your own Loan Estimate and Closing Disclosure decide how it applies to your loan. comparemyloan does not negotiate with lenders, lock rates, or take loan applications.