How is interest pre-paid on the closing statement represented when a buyer takes on a new loan?

When a buyer takes on a new loan and interest is pre-paid, it is typically represented as a debit to the buyer on the closing statement. This reflects the fact that the buyer is responsible for paying the interest on the loan from the moment the loan is initiated. Pre-paid interest means that the buyer is paying for the interest period that will occur after the closing date but before the first mortgage payment is due.

This payment is essential because it ensures the lender receives compensation for the period in which the loan is outstanding, even if the first payment of principal and interest does not occur until a later date. Therefore, on the closing statement, this pre-paid interest shows as a debit to the buyer, indicating that it is an expense that the buyer must pay at closing.

The other choices do not accurately reflect the responsibility for pre-paid interest in this context. A credit to the buyer would imply that the buyer is receiving a benefit or a refund, while a credit to the seller would suggest the seller is entitled to some form of financial gain related to the loan interest. A debit to the seller would be incorrect because the seller does not bear the cost of the buyer's loan interest; that obligation falls solely on the buyer.