How to Calculate Per Diem Interest

Calculate your per diem interest | See an example | Minimizing per diem interest | Related terms | FAQs

Per diem interest is the amount of mortgage interest you’ll owe per day between your closing date and your first monthly payment. Because lenders start charging interest as soon as they fund your loan, you’ll prepay this interest at closing — it appears on your Closing Disclosure under “Prepaid Interest.”

Your per diem interest depends on:

• Your loan amount

• Your interest rate

• The number of days between closing and the start of your first billing cycle

By understanding how it works, you can better plan your closing date and avoid surprises in your final settlement costs.

» SEE: Per Diem Interest Calculator

What is per diem interest?

In the mortgage industry, per diem interest is the daily interest charged on home loan interest. The borrower owes the lender the total per diem interest at closing.

Banks start charging interest the moment they fund the loan. But your first payment isn’t due until the beginning of the month following the loan disbursement on your closing date.

So the lender collects prepaid interest for the period from closing and your initial mortgage payment. As a result, you avoid compound interest and start your mortgage payments with a blank slate.

The day you close affects how much per diem interest you’ll owe. As you get closer to the end of the month, there are fewer days to accrue interest. Therefore, the nearer your closing date is to the month’s end, the less you’ll pay in per diem interest.

For example, if you close on the 22nd of the month, you'll accrue 14 fewer days than if you closed on the 8th. On a $300,000 fixed-rate, 30-year mortgage with a 5.5% interest rate, that’s about $633 in savings.

How to calculate per diem interest

Here’s how to calculate your per diem interest step by step:

1. Multiply your loan amount by your annual interest rate: Example: $300,000 × 5.5% = $16,500 annual interest
2. Divide the annual interest by 365 (or 366 in a leap year): $16,500 ÷ 365 = $45.21 per day
3. Multiply your daily interest by the number of days between closing and month-end: If you close on the 20th, that’s 10 days left in the month:
4. $45.21 × 10 = $452.10 due at closing

💡 Pro tip: Closing later in the month means fewer interest days — and lower prepaid costs.

Your lender will list this figure on your Closing Disclosure, but you can also estimate it yourself using a per diem interest calculator.

You can also use our per diem interest calculator for an estimate.

Per diem interest example

Let's say you took out a $300,000 loan at an interest rate of 5.5%, and your closing date was August 22. Here's how you can estimate the per diem interest breakdown.

• Step #1: Loan amount × interest rate = annual interest charge
  • $300,000 × 0.055 (5.5%) = $16,500
• Step #2: Annual interest charge ÷ no. of days in the year = per diem interest
  • $16,500 ÷ 365 = $45.21
• Step #3: Per diem interest × no. of days from closing to last day of the month = total interest due
  • $45.21 x 10 = $452.10 due on August 22

How to minimize your per diem interest

You can’t avoid per diem interest altogether, but you can manage how much you pay.

• Time your closing wisely: The later in the month you close, the fewer days of interest you’ll owe.

• Avoid delays: If your closing gets pushed to the following month, your per diem total could increase.

• Balance savings and stress: Don’t rush a late-month closing just to save a few hundred dollars — a delayed or sloppy transaction can cost more in the long run.

While this strategy won’t change your overall loan cost, it can help reduce the upfront cash you need at closing.

Other terms related to per diem interest

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