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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...

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    If you close early enough in the month some lenders will pay you the odd days interest. The first payment is then due one month earlier. In your example, they would pay you interest from August 1 to August 7 and your first payment would be September 1 including interest from August 1. – Ross Millikan Jun 27 '17 at 3:31
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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.

  • Thanks for the alternate term. "Prepaid interest" rings a bell – Patches Jun 26 '17 at 22:25
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    @Patches haha, "odd days interest" I was thinking, "interest for August 1, 3 and 5"... – Michael Jun 27 '17 at 19:15
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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.

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    My bank lets you have the cycle on any day (eg to coincide with payday), but the same thing applies - you have to make a special payment for the interest between the day they give out the funds until the first payment date. – psmears Jun 27 '17 at 10:29
  • @psmears - The math means it should make no difference to the bank. You found one that's not obsessed with a first-of-month due date. (I've still never seen one, personally. Thx for letting me know they exist) – JoeTaxpayer Jun 27 '17 at 10:43
  • I'm in the UK if that makes any difference... – psmears Jun 27 '17 at 10:52

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