On an Illinois mortgage-closing statement, what does the prepaid interest charge generally represent?
Correct Answer
A) Interest accrued from the closing date through the end of the month, covering the gap before the first full amortization cycle begins.
Mortgage interest accrues in arrears, meaning the payment made on the first of a given month covers interest for the prior month. To align the loan with this cycle, lenders collect prepaid interest at closing for the days remaining in the closing month. For example, if a loan closes on October 15, the lender collects 16 days of prepaid interest (October 15–31) so that the first regular payment on December 1 covers only November's interest. This is a standard line item on Illinois closing disclosures.
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