What are prepaids at mortgage closing?
Prepaids are expenses collected at closing in advance of the first scheduled mortgage payment. They can include homeowners insurance premiums, prepaid interest and applicable taxes or mortgage insurance. They are different from lender origination charges and from the initial escrow deposit, although all can affect the cash needed to close.
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.