Efficient Guide to Calculating Per Diem Interest on Your Mortgage- Simplified Steps for Financial Clarity

How to Calculate Per Diem Interest on a Mortgage

Understanding how to calculate per diem interest on a mortgage is crucial for borrowers who are refinancing, paying off their loans early, or dealing with escrow adjustments. Per diem interest refers to the interest that is charged for a portion of a day, typically when a mortgage payment is made before the due date or when a loan is paid off before the end of the month. This article will guide you through the process of calculating per diem interest on a mortgage.

Step 1: Determine the Daily Interest Rate

The first step in calculating per diem interest is to determine the daily interest rate. This can be found by dividing the annual interest rate by the number of days in a year. For example, if your annual interest rate is 5%, you would divide 5 by 365 to get a daily interest rate of approximately 0.0137 (or 0.137%).

Step 2: Calculate the Principal Balance

Next, you need to calculate the principal balance of your mortgage. This is the amount of money you still owe on your loan. You can find this information on your latest mortgage statement or by contacting your lender.

Step 3: Determine the Number of Days

To calculate per diem interest, you must know the number of days between the date you make the payment or pay off the loan and the end of the month. For example, if you make a payment on the 15th of the month, you would calculate the interest for 16 days.

Step 4: Calculate the Per Diem Interest

Now that you have the daily interest rate, principal balance, and the number of days, you can calculate the per diem interest. Multiply the principal balance by the daily interest rate and then by the number of days. For example, if your principal balance is $200,000, your daily interest rate is 0.0137, and you have 16 days, the calculation would be:

$200,000 x 0.0137 x 16 = $4,448

So, the per diem interest on your mortgage would be $4,448.

Step 5: Apply the Per Diem Interest

Once you have calculated the per diem interest, you can apply it to your mortgage. If you are refinancing or paying off your loan early, the per diem interest will be subtracted from the total amount you owe. If you are dealing with an escrow adjustment, the per diem interest will be added to your escrow account.

In conclusion, calculating per diem interest on a mortgage is a straightforward process that involves determining the daily interest rate, principal balance, and the number of days. By following these steps, you can ensure that you are accurately calculating and applying per diem interest to your mortgage.