Prepaid Interest

Prepaid Interest
The interest that a debtor pays before the first scheduled debt repayment. For taxation purposes, most kinds of prepaid interest are expensed over the life of the loan.

For mortgage loans, prepaid interest can also be the interim interest that accrues from the settlement day to the beginning of the first mortgage period.

Points, a kind of fee that mortgage lenders charge borrowers, are considered a type of prepaid interest. Similar to other types of prepaid interest, points are typically deducted over the life of the loan (in this case, a mortgage). However, provided that certain conditions are met, the IRS does allow this type of prepaid interest to be deducted in the year in which it is paid.

Investment dictionary. . 2012.

Look at other dictionaries:

  • prepaid interest — Interest paid before the time it is earned …   Black's law dictionary

  • prepaid interest — An asset account showing interest that has been paid in advance, which is expensed and charged to the borrower s P & L statement. Bloomberg Financial Dictionary …   Financial and business terms

  • prepaid interest — Fin interest paid in advance of its due date …   The ultimate business dictionary

  • Interest Expense — The amount reported by a company or individual as an expense for borrowed money. In the U.K. it is called interest payable . Interest is calculated as a percentage of the amount of debt for each period of time. Points paid for a mortgage are a… …   Investment dictionary

  • True Interest Cost - TIC — The real cost of taking out a loan. True interest cost includes all ancillary fees and costs, such as finance charges, possible late fees, discount points and prepaid interest, along with factors related to the time value of money. It can also… …   Investment dictionary

  • College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board — Supreme Court of the United States …   Wikipedia

  • Good faith estimate — A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated… …   Wikipedia

  • Discount Points — A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point… …   Investment dictionary

  • closing costs — n. Expenses that must be paid on closing, including fees for title searches and title insurance, deeds, appraisals, credit reports, and escrow. The Essential Law Dictionary. Sphinx Publishing, An imprint of Sourcebooks, Inc. Amy Hackney Blackwell …   Law dictionary

  • accrual basis — A method of accounting that reflects expenses incurred and income earned for any one tax year. In contrast to the cash basis of accounting, expenses do not have to be paid to be deductible nor does income have to be received to be taxable.… …   Black's law dictionary

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