What is Mortgage Prepaid Interest for Real Estate Closings in NYC?

[aslan]

Hey guys, what exactly is mortgage prepaid interest? It's actually a good question. A buyer was asking me whether this is an extra closing cost? An extra fee paid to the buyer's bank lender?

Can you not pay it? Or is it standard and mandatory for NYC real estate closings?

[aslan]

That may be the first time I've ever heard of a buyer asking about mortgage prepaid interest and pushing back on it. It's as 100% standard for real estate closings as anything can be. There is no negotiation on whether you can pay it or not.

The only way you could not pay it is if you closed on the first of the month, assuming the first of the month was a weekday. Otherwise, you'd obviously have to pay the interest owed before the next mortgage payment that happens on the first. They're not just going to give those days to you for free.

Same thing if you are getting a lease. If your lease starts on May 1st and you move in April 20th, wouldn't it make sense for you to pay 10 days worth of rent?