Unlike rent for an apartment, which is paid in advance, mortgage interest is paid in arrears. When you make a mortgage payment on April 1, for example, it pays the interest for the month of March.
Borrowers typically prepay interest when they take out a loan to either buy a home or to refinance an existing mortgage. They will pay interest up to the day that is 30 days away from their first mortgage payment.
This means if you close the transaction on, say, March 15th, your first mortgage payment will be due on May 1. It may seem like April is free but it is not. That's because the May payment will pay the interest for April. However, the amount due for the period between March 15th and March 31st will be paid by the borrower at closing. That is called prepaid interest.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
