Prorating Interest on Loans
Interest is almost always paid in arrears (paid at the end of the period). In other words, when you make your mortgage payment on the first of the month, you are paying the interest portion for the previous month.

Interest on a new loan is calculated by multiplying the principal balance time the interest rate, then dividing by 365 days.

Prorating Interest on Loans Example
The Buyer obtains a new loan in the amount of $150,000.00 at 8% interest.

Multiply the principal amount times the interest rate to get the annual interest, $150,000.00 times .08 = $12,000.00.

Option 1 - 365 days a year
Now determine the daily or per diem rate by dividing the annual interest by 365, $12,000.00 divided by 365 = $32.876712 per day (per diem).
The closing is to take place on July 15. July is the period of time being used, and there are 31 days in the period. Therefore, the Buyer will own the property for 17 days in July.

Option 2 - 360 days a year ( will be use in our course)
Now determine the daily or per diem rate by dividing the annual interest by 360, $12,000.00 divided by 360 = $33.333 per day (per diem).
The closing is to take place on July 15. July is the period of time being used, and there are 30 days in the period. Therefore, the Buyer will own the property for 16 days in July.