What Is Prepaids?
Prepaids are amounts paid at closing for expenses that belong to the period after you own the home - typically mortgage interest from the closing date to the end of the month, the first year of homeowners insurance, and initial deposits that fund your escrow account.
Prepaids in plain English
Prepaids are amounts you pay at closing that cover your own costs after you move in: interest from the closing date to the end of the month, usually the first year of homeowners insurance, and the starting deposit into your escrow account for taxes and insurance.
They are not lender fees, so shopping lenders does not change them much - but they still add to the cash you need on closing day.
Example
Closing on the 20th of a 30-day month with a $300,000 loan at 6.5% means about 11 days of prepaid interest - roughly $588 - is collected at closing.
Try it: Prepaids with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Closing costs: what you pay for at the closing table
Closing costs are a mix of lender charges, title and settlement services, government fees and prepaid bills for your own taxes and insurance.
- Estimated closing costs
- $16,037
- 4.0% of the price
- Typical range
- $13,792 – $18,282
- Cash needed with down payment
- $56,037
- Loan $360,000
- Lender charges$2,475
- Title and settlement$3,750
- Government charges$4,250
- Prepaids and escrow (your own future bills)$5,562
Show the numbers as a table
| Item | Group | Amount |
|---|---|---|
| Origination | Lender charges | $1,800 |
| Appraisal | Lender charges | $600 |
| Credit report | Lender charges | $75 |
| Title insurance | Title and settlement | $2,000 |
| Settlement fee | Title and settlement | $650 |
| Attorney fees | Title and settlement | $750 |
| Other fees | Title and settlement | $350 |
| Recording fees | Government charges | $250 |
| Transfer tax (buyer share) | Government charges | $4,000 |
| Prepaid property tax | Prepaids and escrow (your own future bills) | $1,600 |
| First-year homeowners insurance | Prepaids and escrow (your own future bills) | $1,200 |
| Escrow deposit | Prepaids and escrow (your own future bills) | $1,800 |
| Prepaid interest | Prepaids and escrow (your own future bills) | $962 |
Formula
Closing costs = Lender charges + Title and settlement + Government charges + Prepaids and escrowAssumptions
- National-average fee schedule from the Closing Cost Calculator; transfer taxes and title rates vary widely by state and county.
- Your Loan Estimate lists the real figures; compare it line by line.
Why it matters
Prepaids aren't lender fees - they're your own future costs paid in advance - but they still add to the cash you need at closing.
Closing early in the month means more days of prepaid interest at closing; closing late in the month means fewer. Either way you pay the interest - prepaid interest replaces part of what would otherwise be your first payment.
What it means for you
When is it paid?
At closing, listed in the "Prepaids" and "Initial Escrow Payment at Closing" sections of the Closing Disclosure.
Common mistakes
- Mistaking prepaids for fees that can be negotiated away.
- Budgeting closing costs but not the escrow deposit.
- Timing a closing date only to cut prepaid interest, which shifts rather than saves the cost.
Recurring vs. Non-Recurring Closing Costs
One-time fees to complete the transaction — loan origination, title insurance, appraisal, and recording fees.
Prepaid amounts for costs that continue every year — property taxes and homeowners insurance collected upfront into escrow.
Compare and common questions
Prepaids: frequently asked questions
Are prepaids part of closing costs?
They are listed with closing costs and add to your cash to close, but they are your own future expenses paid in advance rather than charges for the loan.
Can a seller pay my prepaids?
Usually, yes. Seller concessions can generally cover prepaid items as well as closing costs, within the loan program's limit.
Why do I pay interest at closing?
Because mortgage interest is paid in arrears. Prepaid interest covers the days from closing to the end of that month, and your first regular payment is due the month after next.
Where it fits
- Buying a home, Closing: before this, Cash to Close; next, Escrow.
More Buying Terms
Recommended next step
Add prepaids to the down payment and closing costs.
Cash-to-close calculator →Sources and review
- Closing Disclosure explainer, Consumer Financial Protection Bureau. Supports: Prepaids and the initial escrow payment are itemized on the Closing Disclosure.
Where this applies: United States. Federal disclosure and servicing rules (TILA/Regulation Z, RESPA/Regulation X) apply nationwide; loan-program rules come from Fannie Mae, Freddie Mac, FHA, VA, USDA or the lender.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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