When a buyer assumes an existing loan on a property, which of the following is prorated at closing?

When a buyer assumes an existing loan on a property, which of the following is prorated at closing?

• A. Interest only
• B. Principal only
• C. Mortgage principal
• D. Both interest and principal

Answer: (A)

When a buyer assumes an existing loan on a property, the prorating of costs at closing is primarily concerned with interest. In real estate transactions, prorating is the process of dividing financial obligations between the buyer and the seller, typically based on the closing date. Interest on a loan accrues daily, and the proration ensures that both parties are charged fairly for the time they own the property during the month of the closing. The seller will owe interest for the days they owned the property during the month, while the buyer will begin to be responsible for the interest from the closing date onwards. This is why interest is the focused component here; it directly relates to the period of ownership during the loan assumption. Other aspects of the loan, such as principal repayment, do not typically prorate because they do not represent a daily cost to be divided between the seller and buyer. Therefore, in the context of assuming an existing loan, interest is the financial component that is prorated at closing.

When a buyer assumes an existing loan on a property, the prorating of costs at closing is primarily concerned with interest. In real estate transactions, prorating is the process of dividing financial obligations between the buyer and the seller, typically based on the closing date.

Interest on a loan accrues daily, and the proration ensures that both parties are charged fairly for the time they own the property during the month of the closing. The seller will owe interest for the days they owned the property during the month, while the buyer will begin to be responsible for the interest from the closing date onwards.

This is why interest is the focused component here; it directly relates to the period of ownership during the loan assumption. Other aspects of the loan, such as principal repayment, do not typically prorate because they do not represent a daily cost to be divided between the seller and buyer. Therefore, in the context of assuming an existing loan, interest is the financial component that is prorated at closing.