What is interim or prepaid interest typically used for in a residential real estate transaction?

Interim or prepaid interest is used to cover the interest that accrues on a loan from the closing date until the end of that month. In a residential real estate transaction, when the buyer closes on the property, the lender expects to receive interest for the period during which the lender has provided funds for the mortgage.

This prepaid interest ensures that the lender is compensated for the use of the funds before the first full monthly payment is due. The amount is calculated based on the loan amount, the interest rate, and the days remaining in the month after the closing date. Therefore, the payment goes directly to the lender at closing, which justifies why this choice is correct.

The other options involve payments that do not directly relate to the accrued loan interest from the closing date. The payment to the seller, the agent, or the title company serves different purposes in the transaction, such as paying for the property, commissions, or closing services, but they do not involve the specific function of handling interim or prepaid interest owed to the lender.