Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

Per diem interest refers to the daily interest that accrues on a mortgage from the closing date until the end of the month. This is applicable because, upon closing a loan, the lender expects to be compensated for the interest incurred on the loan amount from that date until the end of the month.

During this time, the borrower will typically pay the interest for the days in that month during which the loan is funded. This is standard practice in mortgage transactions, and borrowers should be aware of this additional cost that may be included in the first mortgage payment.

The other choices do not accurately represent when per diem interest is applicable. For example, loan origination refers to the initiation of the loan process but not the time at which interest starts accruing. Similarly, the loan application process is about assessing the borrower's eligibility and does not involve interest accrual. Finally, interest does not only apply on weekends and holidays; it accumulates each day, which is why a daily figure (per diem) is used for this calculation.