Finance
Prepaid interest (per diem interest) at a Massachusetts closing represents:
AInterest charged for paying off the loan early
BInterest from the date of closing to the end of the month, covering the remainder of the first billing period✓ Correct
CThe first monthly mortgage payment
DA penalty for late loan application
Explanation
At closing, the borrower prepays interest from the closing date through the end of that month. Subsequent regular mortgage payments then cover interest for full months, starting with the following month.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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