Mortgage interest attributable to one day under the loan's balance, rate, and day-count method.
Daily mortgage interest, also called per diem interest, is the interest attributable to one day under the loan’s current balance, annual rate, and contract day-count method. It is commonly used to calculate date-specific closing and payoff amounts.
Mortgage events do not always align with the regular monthly billing cycle. A purchase closing can create an initial partial interest period, while a refinance or payoff can occur between scheduled due dates. A daily amount allows interest to be calculated through the relevant date.
This explains why a payoff quote has a good-through date. If the old loan is satisfied later than expected, additional interest may accrue and the payoff amount may need to be updated. If it closes earlier, the final interest may differ from the original estimate.
Daily interest also prevents a common mistake: the principal balance shown on a statement is not necessarily the full amount needed to pay off the mortgage on a future date.
Borrowers encounter daily interest in several places:
| Mortgage event | Role of daily interest |
|---|---|
| Purchase closing | Helps calculate prepaid interest for the opening partial period |
| Refinance funding | Helps calculate interest owed on the existing loan through payoff |
| Payoff statement | Extends the payoff amount through a stated good-through date |
| Delayed funding or recording | Can change the final interest amount by one or more days |
| Servicing review | Helps reconcile principal, accrued interest, and the payoff total |
The note, payoff statement, and closing documents control the applicable dates and method.
A common estimate uses:
$$ \text{Daily interest} = \frac{\text{principal balance} \times \text{annual note rate}} {\text{contract day-count basis}} $$
The denominator is often 365 for an estimate, but borrowers should not assume every mortgage or calculation uses the same convention. The contract and servicer calculation control.
For an illustrative $300,000 balance at a 6.00% annual rate using 365 days:
$$ \frac{$300{,}000 \times 0.06}{365} = $49.32 \text{ per day, approximately} $$
Ten applicable days would produce about $493.20 under this simplified example. A changing balance, different day-count method, rounding, or date convention can change the result.
A refinance payoff is quoted through August 20, but the new loan funds on August 22. The existing mortgage remains outstanding for two additional days. At an illustrative daily interest amount of $49.32, the payoff may require roughly $98.64 more interest, subject to the servicer’s final calculation and any other payoff items.
The borrower should request an updated payoff or follow the per diem extension instructions rather than sending only the principal balance.
Daily mortgage interest differs from Accrued Interest because daily interest is the one-day amount. Accrued interest is the total built up across the applicable period.
It differs from Interest Rate because the annual rate is an input, while daily interest is a dollar amount produced from that rate and balance.
It differs from Prepaid Interest because prepaid interest is the closing charge for a specific partial period. Daily interest is the unit amount used to help calculate that charge.
It also differs from Payoff Amount, which can include principal, accrued interest, fees, advances, credits, and other amounts required to satisfy the mortgage.