Accrued Interest
Definition and meaning of Accrued Interest in real estate.
Accrued interest is the interest that has accumulated on a loan or mortgage since the last payment date but has not yet been paid to the lender. Mortgage interest typically accrues daily and is paid in arrears as part of the monthly payment.
In more detail
When a borrower makes a monthly mortgage payment, they are paying for the interest that accrued during the previous month. For example, a mortgage payment due on June first covers the interest that built up throughout the month of May. Accrued interest is a critical calculation during a home sale or refinance, as the closing agent must determine the exact amount of daily interest owed from the last payment date to the closing date. This daily interest rate is known as the per diem interest.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Calculation basis | Daily interest accrual |
| Payment timing | Paid in arrears |
| Key document | Closing Disclosure |
A homeowner refinances their mortgage midway through the month, requiring them to pay the accrued interest that built up daily since their last monthly payment.
Frequently asked questions
Why is my first mortgage payment not due immediately after closing?
Mortgage interest is paid in arrears, so your first payment is typically due on the first day of the second full month after closing to allow interest to accrue.
How is daily accrued interest calculated?
To find daily accrued interest, divide your annual interest rate by three hundred and sixty-five, then multiply the result by your outstanding loan balance.