1. What is Per Diem on a Mortgage?

Per diem (Latin for "per day") on a mortgage refers to the daily interest charged on a loan. It represents the amount of interest that accrues each day before regular mortgage payments begin or during periods when payments are delayed.

2. How Does the Calculator Work?

The calculator uses the per diem formula:

Where:

• \( Loan \) — The principal loan amount in USD
• \( Rate \) — The annual interest rate in decimal form
• 365 — Number of days in a year

Explanation: The formula calculates the daily interest by dividing the annual interest by 365 days.

3. Importance of Per Diem Calculation

Details: Understanding per diem helps borrowers estimate daily interest costs during closing periods, when making early payments, or when payments are delayed. It's particularly important for understanding prepaid interest at closing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why is per diem important at closing?
A: Lenders often require borrowers to pay interest from the closing date to the first of the following month, calculated as per diem.

Q2: Does per diem change over time?
A: Yes, as your principal balance decreases with payments, your per diem amount will gradually decrease.

Q3: Should I convert percentage rate to decimal?
A: Yes, enter 0.05 for 5% or 0.0375 for 3.75%. The calculator doesn't automatically convert percentages.

Q4: Is the 365-day method always used?
A: Most mortgages use 365 days, but some may use 360 days. Check with your lender for their specific method.

Q5: Can I use this for other types of loans?
A: Yes, this calculation works for any simple interest loan where interest accrues daily.