What does prepaid interest mean?

Prepaid interest refers to the interest paid in advance on a loan or mortgage before it is due. This typically occurs at the time of closing on a loan or mortgage. By paying the interest upfront, borrowers can reduce their monthly mortgage payments because the prepaid interest covers the interest that would have accrued between the loan closing date and the end of the first month. It's important to note that prepaid interest is not an additional fee but rather a way to align the payment schedule with the loan's billing cycle.

Updated on: 05/04/2024