How much prepaid interest will a buyer owe at closing for a loan of $235,000 at a 4.75% interest rate?

To determine how much prepaid interest a buyer will owe at closing, you need to calculate the interest due on the loan amount from the closing date until the end of that month. The calculation follows these steps:

1. Determine the Daily Interest Rate: First, you convert the annual interest rate into a daily rate. The annual interest rate is 4.75%. By dividing this by 100, we get 0.0475. To find the daily rate, we take this annual figure and divide it by 365 days: [

\text{Daily Interest Rate} = \frac{0.0475}{365} \approx 0.00013014 ]

2. Calculate the Daily Interest Cost: Next, to find out how much interest is accumulated for the loan amount each day, multiply the daily interest rate by the principal (loan amount): [ \text{Daily Interest Cost} = 235,000 \times 0.00013014 \approx 30.64 ]

3. Count the Number of Days Until Month-End: If the loan closes mid-month, you need to count the number of days remaining in that month. For example