Per Diem Interest

DEFINITION of 'Per Diem Interest'

The interest charge on a loan for one or more days. This does not necessarily mean that the interest on the loan compounds daily, per diem interest simply refers to the amount of interest that is due for one day that a loan is outstanding.

BREAKING DOWN 'Per Diem Interest'

For example, the per diem interest on a 30-year, $100,000, 8% mortgage that compounds monthly (based on a 360-day year) would be: ((.08/12) x $100,000) / 30 days = $22.22.

Per diem interest is calculated and paid at loan closings. It is the pro-rated amount of interest due for remaining days in a month. For example, if a mortgage closes on July 29, per diem interest is calculated for July 29, 30 and 31.

The first monthly payment is then due September 1 and covers interest for the entire month of August. Alternatively, if the loan closing date had been closer to the middle or beginning of the month of July, the borrower could elect to make the first monthly payment on August 1, in which case the borrower would have been credited per diem interest at closing for those days in July before the mortgage closed.

RELATED TERMS
  1. Per Diem Payments

    Generally, a specified amount that employers will pay to employees ...
  2. Day Rate

    The price/cost of a particular service for a day's period. In ...
  3. Required Cash

    The total dollar amount that must be posted up front by the buyer ...
  4. Roll In

    A term which refers to including loan costs into the initial ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. ...
  6. Periodic Interest Rate

    The interest rate charged on a loan or realized on an investment ...
Related Articles
  1. Budgeting

    Understanding 'Per Diem'

    Per diem is one method for reimbursing employees for business-travel expenses. Companies using the per diem method must follow specific government rates.
  2. Personal Finance

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  3. Credit & Loans

    All Your Questions About Loan Interest Rates

    If you think interest rates don’t really matter -- think again. Interest rates have a huge impact on your finances.
  4. Personal Finance

    4 Ways Simple Interest Is Used In Real Life

    Simple interest works in your favor when you're a borrower, but against you when you're an investor.
  5. Economics

    Explaining Interest

    Interest is the price charged to borrow money, and is typically expressed as a percentage of the principal, or the amount loaned.
  6. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  7. Investing

    Simple Interest

    Simple interest is a quick method of calculating the interest charged on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.
  8. Investing

    How does Compound Interest Work?

    A quick way to understand the impact of compound interest is to ask yourself if you’d rather receive $100,000 a day for a month, or start with a penny on day one and double it every day for those ...
  9. Personal Finance

    Dissecting the Simple Interest Formula

    Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest.
  10. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
RELATED FAQS
  1. How can I tell if a loan uses simple or compound interest?

    Learn the differences between simple and compound interest and how you can use mathematical calculations and lender disclosures ... Read Answer >>
  2. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  3. What is the difference between compounding interest and simple interest?

    Learn about simple interest and compound interest, how to calculate the two types of interest and the main difference between ... Read Answer >>
  4. How can I use the correlation coefficient to predict returns in the stock market?

    Read about simple interest loans, how they function, and some of the loan products or contracts that are most likely to carry ... Read Answer >>
  5. What are the pros and cons of a simple-interest mortgage?

    Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>
  6. What are some examples of simple interest loans?

    Learn about two common examples of simple interest loans. Understand what simple interest is and learn why it's important ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center