Mortgage interest that has built up over time but has not yet been paid.
Accrued interest is mortgage interest that has built up over time but has not yet been paid.
Accrued interest matters because mortgage interest is usually earned by the lender as time passes. A borrower can see a principal balance on a statement, but the amount needed to satisfy the loan on a specific date may also include interest that has accrued since the last payment.
It also matters at closing and payoff. Prepaid interest, payoff statements, and refinance payoffs all become easier to understand when the borrower separates principal owed from interest that has accumulated for a period of time.
Borrowers encounter accrued interest when reviewing a payoff statement, closing figures, prepaid interest, or a refinance payoff.
The term becomes practical when the borrower asks why the payoff amount is higher than the visible principal balance or why closing later in the month can change interest-related amounts.
| Term | What it tells the borrower |
|---|---|
| Principal Balance | Unpaid principal still owed |
| Accrued interest | Interest built up for a period but not yet paid |
| Prepaid Interest | Interest collected at closing before normal payment billing begins |
| Payoff Statement | Date-specific amount required to satisfy the loan |
A borrower checks the mortgage balance and sees $250,000 in unpaid principal. The payoff statement for a future date is higher because it includes interest that accrues between the last payment and the payoff date.
Accrued interest differs from Interest because interest is the broader borrowing-cost concept, while accrued interest is the amount that has accumulated for a specific period.
It differs from Interest Payment because accrued interest is what has built up, while the interest payment is the payment portion used to cover that cost.
It also differs from Prepaid Interest. Prepaid interest is collected at closing for a short initial period; accrued interest can appear whenever interest has accumulated but has not yet been paid.