MortgageMath US

Mortgage glossary

Prepaid items

Bills you pay at closing for the weeks and months right after it.

By the Editorial team Last reviewed 1 min read

Quick answer

Prepaid items, or prepaids, are costs you pay at closing before they come due: daily interest from the closing date to the period your first payment covers, usually the first year of homeowners insurance, and sometimes property taxes or mortgage insurance. They’re listed in section F, “Prepaids,” on page 2 of the Loan Estimate and Closing Disclosure.

Key facts

7.24%

30-year fixed average (used in the example)

Freddie Mac Primary Mortgage Market Survey · Week of Oct 29, 2026

2months

Largest escrow cushion a servicer may hold

CFPB, Regulation X 1024.17 · Oct 28, 2026

Prepaid interest, worked out

Mortgage interest is paid in arrears, so your first regular payment doesn’t cover the days between closing and the end of that month; you pay them upfront. On a $300,000 loan at 7.24%, daily interest is $59.51. Close with 15 days left in the month and prepaid interest is $893. Closing later in the month shrinks this line because you borrow for fewer days; your regular payments stay the same.

Prepaids vs. the escrow deposit

Section F pays bills themselves, such as the insurance premium. Section G, the initial escrow payment, is a separate deposit that starts your escrow account so the servicer can pay future property tax and insurance bills; it can include a cushion of up to 2 months of escrow payments.

Neither has a tolerance limit. The CFPB lists prepaid interest, property insurance premiums and initial escrow deposits among the costs that can change by any amount before closing, since they depend on your closing date, insurance quote and tax bill. Estimate them with the closing cost calculator.

Sources

  1. Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
  2. CFPB, Regulation X 1024.17 — Most an escrow account may hold as a cushion (one-sixth of annual escrow payments) (Oct 28, 2026)
  3. CFPB: What are prepaid interest charges?
  4. CFPB: Can my final mortgage costs increase from what was on my Loan Estimate?

Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.

Buying a homeClosing costs for buyers, line by lineEvery section of the Loan Estimate explained, state transfer and mortgage taxes, and how to pay less.6 min readGuideEscrow accounts explained: how the money moves, and why your payment changesHow escrow works month to month, the cushion limit, the annual analysis and what a tax increase does to your payment.7 min readGlossaryClosing costsLender fees, third-party services, taxes and prepaids you pay at closing, on top of the down payment.1 min readGlossaryCash to closeDown payment plus closing costs, minus your deposit and credits: the amount you bring to closing.1 min readGlossaryEarnest moneyThe good-faith deposit paid with a purchase contract, credited to you at closing.1 min readGlossaryOrigination feeThe lender’s charge for processing, underwriting and funding your loan, shown in section A.1 min readGlossaryDiscount pointsAn upfront fee paid to the lender at closing to buy a lower interest rate.1 min readGlossaryLender creditMoney from the lender toward closing costs, in exchange for a higher interest rate.1 min readGlossaryTitle insuranceInsurance against title problems from before your purchase; lenders require their own policy.1 min readGlossaryRecording feeThe government charge to record your deed and mortgage in the public land records.1 min read

On this page

  1. Quick answer
  2. Key facts
  3. Prepaid interest, worked out
  4. Prepaids vs. the escrow deposit
  5. Related terms
  6. Sources

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