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What does Prepaid Interest mean?
Prepaid interest is typically paid at loan closing. It is the interest paid on a new loan from the day of closing through the end of the month. All future interest on a mortgage loan is then paid in arrears. For example, if your new loan closes on February 19th, prepaid interest would be paid at closing from February 19th through the end of the month of February. Interest would then be paid monthly with your first payment beginning April 1st which would pay March interest. Your payment on May 1st would pay April interest, etc.
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