Question:

How do you calculate Per Diem interest?

Answer:

Per diem interest represents the interest you pay on a loan on a day to day basis. To get the per diem interest amount, you use the same approach in getting loan interest for a month or a year.

When do you start calculating per diem interest?

Per diem interest on a mortgage is calculated in relation to the date the mortgage is closed. This is of particular importance because in home mortgage accounting, computation for interest starts on the day the mortgage lender hands over the loan proceeds to the borrower.

For example, if the proceeds were disbursed on the 15 of May, the lender will compute the per diem interest starting on that date up to the 1st of June. The per diem interest for the period May 15 to June 1 represents the first interest payment on the mortgage. What lenders usually do is to collect this interest payment upfront.

Meanwhile, the first payment on a mortgage, that also includes interest for a full month, is always due on the first day of the month. Hence, the first actual interest payment that the borrower will make will be on July 1.

Do you count day of closing in per diem interest?

Yes. This is because this is the day the lender hands over the proceeds of the loan to the borrower.

How to calculate interest per day on a mortgage loan?

The per diem formula is:

Interest rate per day = (annual percentage rate / 365 days) / 100

To compute for the interest amount per day = Interest rate per day x loan amount.

  1. Get the Annual Percentage Rate. You can get this from your mortgage documents.
  2. Divide the APR by 365 and then get the result and divide it by 100. This will be your interest rate per day.
  3. Multiply the loan amount by the daily interest rate. The outcome represents your interest per day amount.

Example 1:

Have a look at the following example:

Loan amount = $435,000.00

APR = 6.8 percent

Loan term = 30 years

Using the above formula we get:

Interest rate per day = (6.8 / 365) / 100

= 0.018630 / 100

= 0.00018630

To get interest per day or per diem interest:

Interest per day = 0.00018630 x 435,000

Interest per day = $81.0405

Example 2:

Here is another example: calculating per diem interest using a $125,000 loan at 5.15%:

Interest rate per day = (5.15 / 365) / 100

Interest rate per day = 0.01410 / 100

Interest rate per day = 0.000141

To get interest amount per day:

Interest per day = 0.000141 x 125,000

Interest per day = $17.625

What is the Excel formula to calculate per diem interest?

You can use the following steps to calculate per diem interest in Excel:

  1. To get the rate of interest per day, input in cell A1 the interest rate.
  2. On cell B1, input 365.
  3. On cell C1, input this formula: "=(A1/B1)/100

    Note: Column C should be formatted to display a minimum of 6 decimal places. To do this, highlight this column then click "Format Cells." Click on the "Numbers" tab and then change the decimal places under "Options, Decimal places."

  4. To get the interest amount, go to cell A2 and input the interest rate per day.
  5. Then on cell B2, input the loan amount.
  6. On cell C3, input the following formula: "=A2*B2
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