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I've got a question on closing costs for a mortgage refinance. For whatever it may be worth, this is a FHA streamline refi.

One of the closing costs is "odd days interest". This was explained as follows: If the loan closes on Aug 1st, and funds on Aug 7th, the "odd days interest" is to cover the interest from Aug 8th-31st. Then, the first payment would be Oct 1st, which pays the principal and interest for September.

Is this legitimate, or is the mortgage broker trying to squeeze in a little extra vig? The explanation seems reasonable, but I don't recall seeing this on any mortgage origination I've seen...

Patches
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2 Answers2

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This is legitimate. You received funds on August 7th, but don't make a payment until October 1st. You therefore owe the interest that accrues between Aug 7th and Aug 31st. From there on, interest is paid in arrears, so your October 1 payment covers the interest from Sep 1st through Sep 30th.

but I don't recall seeing this on any mortgage origination I've seen.

I don't know how many mortgages you've seen, but it may just be a different term used. "Prepaid Interest" is what's listed on the closing statement I'm looking at now.

D Stanley
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Standard. It's how you pay interest until month's end at closing, so the mortgage starts on the new month beginning. I've never seen a mortgage that had a different cycle than starting on the first of the month after closing. No reason why it can't be done, but it makes for easy bookkeeping by the services. You close and the mortgage starts on the first of the next month, simple, easy, common.

JoeTaxpayer
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