Interest on an assumed mortgage is recorded as what on the closing statement?

• A. Debit to buyer
• B. Credit to buyer
• C. Debit to seller
• D. Credit to buyer and debit to seller

Answer: (D)

When a mortgage is assumed, the closing statement must fairly allocate interest that has accrued and will accrue on the loan as of the closing date. The buyer is taking over the loan and will be responsible for interest going forward, while the seller has already paid interest up to closing or is benefitting from prepaid interest related to the period after closing. To settle this at the closing, the amount is shown as a credit to the buyer and a corresponding debit to the seller. This reflects the buyer’s new obligation to pay interest on the loan after closing, while the seller’s proceeds are adjusted for the interest that has already been paid or prepaid on the loan being assumed.