Interest
The cost of borrowing money, expressed as a rate. On most home loans, interest is calculated on the current balance each month, so it drops slowly as principal drops.
Every term like this one lights up in the step you're on.
Free to set up. No credit card.Part 1 of 4
Why a seller cares
Your payoff includes interest up to the day of closing, and it is charged for every day, so a closing on the 28th costs more interest than one on the 3rd. The lender's payoff letter says the daily figure.
Part 2 of 4
A simple example
Your balance is $200,000 at 6%. That is about $33 of interest a day, and a payoff dated the 25th includes 25 days of it.
| When you close | Interest in the payoff |
|---|---|
| The 3rd of the month | About $100 |
| The 25th of the month | About $825 |
| A closing that slips a week | Another $230 or so, added by the day |
Interest accrues daily, and the payoff counts every day up to closing.
Part 3 of 4
What people get wrong
That last month's payment covered this month. Mortgage interest is paid in arrears, so a payoff always includes the current month's days.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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