Q: What is prepaid interest, and why is it on my borrower's closing disclosure?
Mortgage interest is paid in arrears — the payment due on the 1st of any month covers the interest that accrued during the prior month. At closing, the borrower needs to "fill the gap" between the closing date and the start of the period the first regular payment will cover.
That gap is prepaid interest, and it appears on the LE and CD in Section F (Prepaids).
Q: Why is my borrower being charged for some days but credited for others?
Two scenarios:
Standard closing — borrower owes prepaid interest.
Closing late in the month, first payment skips a month.
Example: Close 4/30, first payment 6/1.
The 6/1 payment covers May (in arrears).
The borrower needs to cover April 30 (1 day).
Section F shows 1 day of prepaid interest. Borrower is charged 1 × per-diem.
Short-month closing — borrower is owed a credit.
Closing early in the month, first payment is the same month's 1st.
Example: Close 4/6, first payment 5/1.
The 5/1 payment covers April 1–30 (in arrears).
But the borrower didn't actually have the loan from April 1–5 (5 days).
The lender owes the borrower for those 5 days as a credit.
Section F shows 0 days. A separate Lender Credits line "Prepaid Interest Credit (Short-Month Closing)" appears in Section J at 5 × per-diem.
Q: What is "Per Diem" and where does it come from?
Per Diem is the daily interest amount on the loan:
Per Diem = (Loan Amount × Rate) / Day Count Method
It's read-only on the Prepaid Interest fee modal — to change it, change the loan amount, the rate, or the day-count method. Per Diem is always shown, even when the calculated days are zero or negative, so you can sanity-check the math.
Q: How do I control whether the borrower is charged or credited?
Through the dates — there's no separate short-month toggle.
Open the Prepaid Interest fee on the Closing Costs tab. Both Closing Date and First Payment Date are editable in the modal:
Pick the dates that match the actual closing schedule.
The Days field updates automatically based on the date pair.
If you type a value into Days manually, it pins across other automatic recalculations until you pick a new date in either calendar — then the pin clears and Days recalculates.
Days outside ±31 are rejected with a clear error.
Saving the fee writes the date changes through to the loan's key dates in the same operation — no separate save needed.
Q: My loan was set up before this update. Will it auto-correct?
Yes — loans saved against the previous toggle-based model will heal automatically the next time the Prepaid Interest fee is saved. No manual cleanup, and no double-counting in Section J.