Prepaids
Also called: prepaid items, prepaid interest
Money collected at closing to fund your own future taxes and insurance, plus interest from closing to month end.
Prepaids are not a lender fee. They are your own expenses collected early: the first year of homeowners insurance, the initial deposit into the escrow account, and interest covering the days between closing and the start of the first full month.
They are frequently mistaken for closing costs. Both are due at closing, but prepaids fund an account you benefit from, while closing costs pay for services.
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Related terms
- Closing costsThe lender, title, and third-party fees due at closing: separate from your down payment.
- Escrow account (impounds)An account your servicer uses to collect and pay your property taxes and homeowners insurance alongside the mortgage payment.
- Homeowners insuranceProperty and liability coverage a lender requires, typically paid a year in advance at closing then escrowed.
- Property taxAn annual tax assessed by local government on real property, usually collected monthly through escrow.
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