Let’s begin this article with the meaning of “per diem”. Per
diem is a Latin word for “per day”, or daily interest. This term
is used in the finance industry to calculate the daily interest
owed to the mortgage company at closing.
The bank will charge you interest on the loan from the day of
closing until the end of the month. For example, let say you’re
closing on the 1st day of September, you will pay the bank
interest on the entire loan (mortgage) from the first day of the
month until the last day of the month . . . 31 days . . .
“per diem interest”. If your
settlement occurred on the 15th day of the month, you would pay
the bank 16 days interest (count the day of closing), and if you
closed on the last day of the month, you would owe the bank one
day of interest on the loan.
diem interest calculation
The per diem interest rate is easy to estimate. We’ll use a loan
amount of $100,000 for this example. The interest rate is 3% and
there are 365 days in the year. Closing is on the 15th day of
1: Take the loan amount ($100,000) and multiply the loan
by the interest rate (3.000$) = $3,000
Step 2: Divide the total interest of
$3,000 by the number of days in the year (365). This is your
“per diem interest” = $8.22 per day. (Wow, that's how much the
bank earns every day for $100,000 at 3%)
Step 3: Multiply the daily per diem
cost of $8.22 by the number of days from the date of closing
until the end of the month. The number of days is 16, count the
day of closing.
The per diem interest paid at closing is $131.51.
Here's the mathematics for per diem. Too complicated? Use the
Per Diem Calculator
to estimate the monthly cost
The calculators and information contained herein are made available
to you as a self-help tool for illustrative use only. Examples are hypothetical.
We can not and do not guarantee the applicability or accuracy in regards
to your individual circumstances. I encourage you to seek personalized
advice from qualified professionals.