Mortgage Interest on Assumed Mortgages

If a buyer is assuming the seller’s existing mortgage, prorating interest is necessary because mortgage interest is also paid in arrears. When a borrower makes a mortgage payment on the first of the month, they are actually paying the interest for the previous month. If a closing happens on the 15th of the month, the next mortgage payment (due on the 1st of the next month) will cover the interest for the entire current month. Since the seller owned the home for the first 15 days, they owe the interest for those days. Therefore, the closing agent calculates the daily interest cost and charges the seller for the days they occupied the home during the closing month, crediting that amount to the buyer who will make the full payment next month.