How often must a buyer prepay the mortgage loan interest?

When a buyer takes out a mortgage loan, the interest on the mortgage is typically prepaid at closing. This means that at the time the transaction is finalized, the borrower pays the interest for the first month in advance. This practice ensures that the lender receives payment for the interest that accrues immediately after the loan is taken out, aligning both the borrower and lender on payment expectations moving forward.

This prepayment of interest at closing is a standard approach in mortgage transactions for several reasons. Firstly, it simplifies the payment structure for the borrower, as they begin their loan term with all fees and payments clearly delineated. Secondly, it assures lenders that the loan will be active and not fall into interest arrears from the outset.

In contrast, monthly prepayment would mean that the borrower would start making payments at the beginning of the loan term, which is not how the mortgage structure is designed. Paying two times before closing or annually at the end of the year does not accurately reflect the norm in mortgage agreements, where prepayment at closing is the most common practice.