Prepaid mortgage expenses

A hypothetical prepaid-cost example

Suppose a closing statement includes $1,200 for an insurance premium and $300 for prepaid interest. Those two items total $1,500. This invented example is not a quote and does not include every closing expense. A separate escrow deposit, other costs and the down payment could still be part of the cash calculation.

Read prepaids and escrow separately

On a Loan Estimate, prepaids appear in section F and the initial escrow payment appears in section G. Escrow starts a lender-managed account for future property bills. Prepaid interest depends in part on the closing date. Compare the amounts and covered periods, not just the combined total.

Ask what each amount covers

Ask who receives each payment, which dates it covers and whether a changed closing date would change the estimate. Compare your Loan Estimate with the Closing Disclosure before signing. Keep moving expenses and the money you want left afterward in a separate plan; they are not the same as prepaid mortgage expenses.

Sources and further reading

• CFPB: prepaid expense disclosures
• CFPB: initial escrow deposits
• CFPB: reading your Loan Estimate

Mortgage glossary

• Debt-to-income ratio (DTI)
• Loan-to-value ratio (LTV)
• Combined loan-to-value ratio (CLTV)
• Mortgage reserves