Prepaid interest. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year.
Conventional wisdom says buyers should wrap up their home-purchase deal at the end of the month so they can pay less prepaid interest at closing. That’s not a bad strategy, but like so much.
Prepaid interest is collected by the mortgage lender to pay for the interest charges for the rest of the month during which the loan closes escrow. If you are seeking to minimize closing costs, consider closing later in the month to decrease the prepaid interest collected at the closing. mortgage interests are paid in arrears after they are earned by the lenders.
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Can i claim the Prepaid interest at the time of closing? the amount is listed on my closing documents and is in the amount of $184.59. Yes, however there is a special rule for prepaid insurance, and you have to calculate it manually (but it’s easy).
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But you may still have to pay for other fees typically charged at closing, including real estate taxes, prepaid interest, transfer fees and private mortgage insurance. Are There Other Ways to Avoid.
It’s cheaper for the buyer in up-front closing costs to close at the end of the month. If you close on the 27th, you have only 3 days of pre-paid interest. If you close on the 2nd, you have to pay interest for 28 days, from the day of closing till the last day of the month. Also, I like to close on Thursday, or earlier in the week.
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Prepaid costs include the following. When you close, you’ll have to pay interest that’s pro-rated from the date of your closing to the first of the following month. Lending Tree says that many people.
Closing Date and Per Diem Interest. The interest clock on a mortgage loan starts ticking on the date when funds are disbursed, which typically is the closing date on a purchase transaction, and 3 business days after the closing on a refinance.