## What is per diem interest?

Per diem interest is the amount of interest charged on a daily basis for a just-closed mortgage. Because not everyone receives the money for a mortgage on precisely the 1st of the month, borrowers have to pay per diem interest for the days between closing the mortgage and the beginning of the next month when regular payments begin.

## Deeper definition

When someone takes out a mortgage, she has to pay interest every month in addition to her payments against the principal. The amount of interest is calculated as a percentage of the principal, and the payment is calculated for the whole of a single month. Borrowers have to pay on the first day of the following month.

However, per diem interest is charged at closing, which could be any day of the month. The lender will calculate how many days are left in that same month and charge an amount of interest per day after disbursing the funds, and the borrower will have to pay that amount at that time. After that, interest is calculated as normal, and the borrower will have to make a regular payment on the 1st of the following month that represents her typical month-to-month payments.

Virtually all interest, including per diem interest, compounds, meaning that any unpaid interest will be added to the principal and interest will accrue on the combined amount instead of on just the principal.

Curious how much interest you’ll have to pay? Use Bankrate’s mortgage calculator to find out.

## Per diem interest example

Sasha just took out a mortgage in loan amount of \$200,000, with an the interest rate of 4 percent. That makes her total interest for the whole year \$8,000. By dividing \$8,000 by 365, the number of days for one year, she determines that her daily interest cost is \$21.92. Sasha’s mortgage closed on October 16th, meaning that she still has 15 days to go before beginning the regular monthly cycle of mortgage payments. Her lender multiplies \$21.92 by 15 days in order to get a total per diem interest amount of \$328.80, which Sasha pays up front.

## Other Mortgages Terms

##### Guaranteed mortgage

Guaranteed mortgage is a term every borrower should know. Bankrate explains it.

##### Shared appreciation mortgage

Shared appreciation mortgage is a term worth understanding. Bankrate explains it.

##### Home Keeper

Home Keeper is a defunct reverse mortgage program. Learn more at Bankrate.com.

##### Life cap

Life caps limit the amount your interest rate can increase. Bankrate explains.

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