On an Illinois closing disclosure, prepaid interest is collected at closing to cover which period?
Correct Answer
C) The period from the closing or funding date through the end of that month, before regular amortization begins.
Prepaid interest covers the odd-days interest that accrues from the loan's closing or funding date through the last day of that same month. Because most mortgage payments are made in arrears on the first of the following month, this short-period interest must be collected upfront at closing so the lender's interest accrual cycle aligns correctly when the first full payment is due.
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Related Topics & Key Terms
Key Terms:
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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