What Does “Per Diem” Mean In Real Estate?
Whether you are a first-time homebuyer, a buyer who has purchased a home previously or a real estate agent who has been hired to help someone purchase a home, it is important for you to understand certain terminology. One of the most important terms that need to be understood is “per diem.”
“Per diem” is a Latin term that means “per day.” When someone enters into a contract on a home, there is a date entered into the contact, which is known as a closing date. Per diem charges may occur if the loan is not approved for some reason by the date that the loan was scheduled to be completed. During closing, these charges will be payable to the lender and will appear on the Closing Disclosure.
Understanding Per Diem In The Real Estate World
As a purchaser of real estate, it might be necessary to have a better explanation of what per diem means. It can be explained as interest that is charged to you on a loan for one or even more than one day.
However, it does not mean that interest compounds daily. Instead, it means it is the amount of interest that is payable each day that the loan is outstanding.
The per diem amount will be calculated and paid at the closing of the loan. It is figured as the prorated amount of interest due for the days left in the month. For example, if you are scheduled to close on your mortgage loan on July 29, the per diem interest will be calculated for the remaining days of the month — July 29, 30 and 31.
Once the per diem interest is figured, then the first monthly payment can be calculated and scheduled. In this case, the first payment will be due on September 1 and will include the interest charges for the entire month of August. However, if the closing date of the mortgage loan is in the middle of July, as a borrower you can choose to schedule your first payment to be due on August 1. In cases such as this, the per diem interest charges due at closing can be credited back to you.
An example of how per diem interest is calculated is simple to explain. Let’s use an example of a $100,000 mortgage loan for 30 years at an interest rate of 8 percent.
The formula for this would look like this: ($100,000 x (0.08 x 12)) / 30 = $22.22.
In summary, per diem is an amount charged to a borrower for days that follow the date when a loan is scheduled to close and does not for one reason or another. This amount is paid at the actual closing and will be calculated and the amount given to you at that time.
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