1. What is Per Diem Interest?

Per diem interest is the daily interest charge on a loan, typically calculated when a loan closes mid-month or when paying off a loan early. It represents the interest that accrues each day on your mortgage or loan balance.

2. How Does the Calculator Work?

The calculator uses the per diem interest formula:

Where:

• \( Loan \) — The loan amount in USD
• \( Rate \) — The annual interest rate in decimal form

Explanation: The formula first calculates the monthly interest (by dividing annual rate by 12), then divides by 30 to get the daily amount.

3. Importance of Per Diem Calculation

Details: Calculating per diem interest is crucial for understanding daily loan costs, especially when closing on a mortgage (to calculate interest due at closing) or when making early payments (to know exact payoff amounts).

4. Using the Calculator

Tips: Enter the loan amount in USD and the interest rate in decimal form (e.g., 5% as 0.05). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 30 days instead of actual days in month?
A: Most lenders use a 360-day year (12 months × 30 days) for simplicity in daily interest calculations.

Q2: How is this different from regular monthly interest?
A: Monthly interest is the total for a full month, while per diem calculates the daily portion of that amount.

Q3: When is per diem interest typically charged?
A: Commonly charged at loan closing (from closing date to end of month) and when paying off a loan early.

Q4: Does this work for all types of loans?
A: Primarily used for mortgages, but can apply to other simple interest loans. Doesn't apply to credit cards or compound interest loans.

Q5: How accurate is the 30-day calculation?
A: It's an industry standard approximation. Some lenders may use actual days, but 30-day method is most common.