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Mortgage Glossary

Prepaid Interest

Mike Starr·Reviewed August 2026

Prepaid interest is the mortgage interest that accrues between your closing date and the end of that calendar month, paid upfront at closing. Because mortgage payments are made in arrears (covering the prior month), the first full payment isn't due until the following month. Closing at the end of the month minimizes prepaid interest; closing at the beginning maximizes it.