What is Prepaid Interest?

The interest that a borrower pays before the first scheduled repayment of the debt is referred to as prepaid interest.

For mortgage loans, prepaid interest refers to the interest the borrower pays at closing for the rest of the month

Generally, the common practice is that the borrower pays his/her due interest in the beginning of the month. However, you may buy the home in the middle of the month. In such a case, you wouldn't have made any payments for this month. Thus, the due amount for the rest of the month has to be paid at closing.

It is good to note that points can be also considered a type of prepaid interest.

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