The term “per diem” means “per day” and in the context of a mortgage, it refers to the interest calculated on a daily basis between your mortgage closing date and the day your first mortgage payment is due. This tool is essential for homeowners looking to understand the day-to-day interest accrual on their new home loan.
Formula for Mortgage Per Diem Calculator
The per diem interest is calculated using a straightforward formula:
Per diem interest = (Loan amount x Annual interest rate x Annual proration) / Number of days
Explanation of Variables:
- Loan Amount: This is the total amount that you have borrowed as a mortgage.
- Annual Interest Rate: This is the interest rate agreed upon, expressed as a decimal (e.g., 5% as 0.05).
- Annual Proration: This factor adjusts the calculation based on the actual number of days considered in a year, which could be 360, 365, or 366. If this is not specified, it defaults to 1.
- Number of Days: This is the count of days from when the loan closes to when the first payment is due, typically the first of the next month.
Practical Application: Tables and Calculations
To simplify the use of this formula, below is a table that shows typical daily interest rates per $100,000 of loan amount, based on various annual interest rates and proration factors:
| Annual Interest Rate | Daily Interest (360 days) | Daily Interest (365 days) |
|---|---|---|
| 3% | $8.33 | $8.22 |
| 4% | $11.11 | $10.96 |
| 5% | $13.89 | $13.70 |
These values give a quick reference to approximate the daily interest you will need to consider.
Example of Mortgage Per Diem Calculator
Let’s consider a real-life example: Suppose you take a mortgage of $300,000 at an annual interest rate of 4.5% with a proration factor of 365 days, and there are 30 days from closing to your first payment:
Per diem interest = ($300,000 x 0.045 x 1) / 30 = $450
This means you will accrue $450 in interest over the 30 days before your first payment.
Most Common FAQs
Per diem interest is the interest calculated on a daily basis between the closing date of your mortgage and the date your first payment is due.
To calculate per diem interest, use the formula provided in the “Formula” section above, which considers your loan amount, interest rate, proration factor, and the number of days until your first payment.
Lenders use different proration factors (360, 365, or 366 days) to align the interest calculations with their accounting systems or loan agreements. It’s crucial to know your lender’s specific proration factor when calculating daily interest.