What is the amount of prepaid interest charged at closing for a loan of $255,000 at an interest rate of 5.75% closing on July 7th?

To determine the correct amount of prepaid interest charged at closing for a loan, you'll need to calculate the daily interest based on the loan amount and interest rate, and then determine how many days of prepaid interest will be charged until the next payment is due.

First, calculate the daily interest:

1. The interest rate of 5.75% converts to a decimal, which is 0.0575.

2. To find the daily interest, divide the annual interest by the number of days in a year (assuming 365 days):

[

\text{Daily Interest} = \frac{0.0575 \times 255,000}{365} \approx 40.40

]

Next, determine how many days of prepaid interest there will be. Since the loan closes on July 7th, you will typically prep for the first payment due on the first of the following month. This means you are looking at 24 days of prepaid interest from July 7 to July 31.

3. Multiply the daily interest by the number of days:

[

\text{Prepaid Interest} = 40.40 \times 24 \approx 970.00

]

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